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

) Prejudice against women.
c) Prejudice against the business location.
d) Prejudice against the business type.
e) Prejudice or discrimination (not-specified or other).
Statistical Disparities in Capital Markets
Among firm owners who had applied for credit within the last three years and were denied, 34.1
percent believed there were reasons for their denial beyond the official explanation provided by
the financial institution. Among nonminorities, 7.7 percent suspected some sort of prejudice. By
contrast, the figure among minorities was 25.8 percent. Among owners who needed credit but
did not apply for fear of denial, a similar pattern was observed. Only 1.7 percent of
nonminorities stated prejudice was the reason, whereas among minorities the figure was 6.8
percent.
In Tables 6.8 and 6.9, the determinants of loan denial rates were estimated using data from the
1993 NSSBF. African American-owned firms were found to be almost twice as likely to have
their loans denied than nonminority male-owned firms, even after controlling for a host of
variables included primarily to control for the possibility that minority-owned firms were smaller
and less creditworthy than those owned by nonminority men.
A similar exercise is performed below in Tables 6.18 and 6.19 using data from the 1998 SSBF.
Column 1 in Table 6.18 shows that African American-owned firms in 1998 had a 42.2
percentage point higher probability of denial than nonminority male-owned firms before taking
account of creditworthiness of the firm or any other characteristics. For 1993, the comparable
figure was 44.3 percentage points. The addition of a large number of controls reduces the
percentage point differential for African Americans to 21.8 in column 5 as the full set of controls
is added. For 1993, the comparable figure was 24.1 percentage points.
The main difference between 1993 and 1998 is that now we find evidence that the probability of
denial is significantly higher for Hispanic-owned firms as well. In Table 6.18, Column 5,
Hispanic-owned firms have a 17.1 percentage point higher probability of being denied than
nonminority male-owned firms. In Table 6.8, by contrast, denial probabilities for Hispanicowned
firms were not significantly different from those of nonminority male-owned firms. If
anything, discrimination in the small business credit market appears to have expanded during the
late 1990s.
NERA Economic Consulting 216