Credit Scoring and the Availability, Price, and Risk of Small Business Credit

39 Pages Posted: 23 Jun 2002

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business

W. Scott Frame

Structured Finance Association

Nathan Miller

Georgetown University - McDonough School of Business

Date Written: April 2002

Abstract

We examine the economic effects of small business credit scoring (SBCS) and find that it is associated with expanded quantities, higher average prices, and greater risk levels for small business credits under $100,000. These findings are consistent with a net increase in lending to relatively risky "marginal borrowers" that would otherwise not receive credit, but pay relatively high prices when they are funded. We also find that: 1) bank-specific and industrywide learning curves are important; 2) SBCS effects differ for banks that adhere to "rules" versus "discretion" in using the technology; and 3) SBCS effects differ for slightly larger credits.

Keywords: Banks, credit scoring, small business, risk

JEL Classification: G21, G28, G34, L23

Suggested Citation

Berger, Allen N. and Frame, W. Scott and Miller, Nathan, Credit Scoring and the Availability, Price, and Risk of Small Business Credit (April 2002). FRB of Atlanta Working Paper No. 2002-6, FEDS Working Paper No. 2002-26, Available at SSRN: https://ssrn.com/abstract=315044 or http://dx.doi.org/10.2139/ssrn.315044

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene St.
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

W. Scott Frame

Structured Finance Association ( email )

1776 I Street NW
#501
Washington, DC 20006
United States

Nathan Miller

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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