The State of Minority- and Women- Owned ... - Cleveland.com

2. Differences in Loan Denial Rates by Race/Ethnicity
Statistical Disparities in Capital Markets
In 1998 as in 1993, in comparison with firms owned by nonminority males, minority- and
female-owned firms were less creditworthy, more likely to have their loan applications turned
down, more likely not to apply for a loan for fear of being denied, and consistently smaller and
younger. Moreover, their owners had lower amounts of both home and non-home equity.
Minority-owned firms in general, and African American-owned firms in particular, were much
less likely to be classified as having a “low risk” credit rating by Dun & Bradstreet. 290
In the 1993 survey, respondents were asked “During the last three years has the firm applied for
credit or asked for the renewal of terms on an existing loan?” In 1998, a narrower question
limited to new loans was asked—“Did the firm apply for new loans in the last three years?” In
1993, 43 percent answered the question in the affirmative compared with 27 percent in 1998.
Despite the fact that in 1993 the question was broader, the pattern of denials by race and gender
is similar across the years. As can be seen below, minority-owned firms were especially likely to
have their loan applications denied.
Percentage of Loan Applications Denied
1993 1998
Nonminority males 26.2% 24.4%
African Americans 65.9% 62.3%
Asian/Pacific Islanders, Native Americans, etc. 39.9% 47.0%
Hispanics 35.9% 49.9%
Nonminority females 30.1% 23.5%
Overall 28.8% 28.6%
Similarly, the proportion of firms reporting that they did not apply for fear of being denied is
similar by race, ethnicity, and gender across the two survey years. More than half of African
American owners did not apply for a loan for fear of being denied compared with only one out of
five nonminority males.
Percentage Not Applying for Fear of Denial
1993 1998
Nonminority males 22.5% 20.2%
African Americans 60.7% 53.9%
Asian/Pacific Islanders, Native Americans, etc. 27.5% 23.1%
Hispanics 41.5% 34.3%
Nonminority females 22.7% 24.2%
Overall 24.7% 23.3%
In the 1998 SSBF survey, respondents who were denied loans were asked if they believed there
were reasons other than the official ones provided by their financial institution as to why their
loan applications were turned down. Among numerous options provided were the following:
a) Prejudice on a racial/ethnic basis.
290 Information on home and non-home equity or on the Dun & Bradstreet credit rating was not available in the
1993 survey.
NERA Economic Consulting 215