Access to Debt Capital for Women- and Minority-Owned Small Firms: Does Educational Attainment Have an Impact?

Abstract

Due to their inability to access public debt and equity markets, small firms are heavily dependent on loans as a financing source. Prior research reveals that women and minority borrowers experience greater difficulty securing loans than white male borrowers. Previous research has also revealed a link between the educational level of the owner and firm survival and profitability. This article examines the relationship between educational attainment and the firm's willingness and ability to secure loans with particular attention to the borrowing experience of women and minority borrowers. Results reveal that, even controlling for differences in educational level, black men were significantly less likely to be approved for their most recent loan request. Further, black men were significantly less likely to apply for loans because they assumed they would be denied. (Publication abstract)

Keywords: Trade credit, Survey of Small Business Finances (Federal Reserve Board), Bank loans, Debt capital, Educational background, Ethnic entrepreneurs, Minority firms, Operator ownership, Female owned businesses, Financing, Firm performance