Modernizing Access to Credit for Younger Entrepreneurs: From FICO to Cash Flow

Christopher M. Hair, Sabrina T. Howell, Mark J. Johnson and Siena Matsumoto

No 33367, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies financial constraints over the entrepreneur’s lifecycle in the context of small business lending. Underwriting relies on personal credit scores, which are backward-looking and favor long histories. In causal analysis, we show that younger entrepreneurs’ loan applications have higher approval rates when the lender incorporates recent cash flows from business checking accounts. The result does not reflect lender risk-taking and is concentrated among lower-FICO applicants and the youngest entrepreneurs. Personal credit scores are both noisier and mechanically biased downward for younger entrepreneurs. Cash flow data provide an independent signal that reclassifies these entrepreneurs as less likely to default.

JEL-codes: G21 G23 G32 J14 J16 (search for similar items in EconPapers)
Date: 2025-01
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-lab, nep-pay and nep-sbm
Note: AG CF PR
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w33367.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33367

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33367
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().