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The Effect of Credit Scoring on Small-Business Lending

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Author Info
Frame, W Scott
Srinivasan, Aruna
Woosley, Lynn
Abstract

This paper examines the effect of credit scoring on small-business lending for a sample of large U. S. banking organizations. We find that credit scoring is associated with an 8.4 percent increase in the portfolio share of small-business loans, or $4 billion per institution. However, we fail to uncover any specific attributes of bank small-business credit-scoring programs that lead to this increased lending. Overall, we conclude that credit scoring lowers information costs between borrowers and lenders, thereby reducing the value of traditional, local bank lending relationships.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 33 (2001)
Issue (Month): 3 (August)
Pages: 813-25
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Handle: RePEc:mcb:jmoncb:v:33:y:2001:i:3:p:813-25

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Allen N. Berger & Marco A. Espinosa-Vega & W. Scott Frame & Nathan H. Miller, 2007. "Why do borrowers pledge collateral? new empirical evidence on the role of asymmetric information," Working Paper 2006-29, Federal Reserve Bank of Atlanta. [Downloadable!]
  2. Robert DeYoung & William Hunter & Gregory Udell, 2004. "The Past, Present, and Probable Future for Community Banks," Journal of Financial Services Research, Springer, vol. 25(2), pages 85-133, April. [Downloadable!] (restricted)
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  3. Allen N. Berger & Adrian M. Cowan & W. Scott Frame, 2009. "The surprising use of credit scoring in small business lending by community banks and the attendant effects on credit availability and risk," Working Paper 2009-09, Federal Reserve Bank of Atlanta. [Downloadable!]
  4. Allen N. Berger & Gregory F. Udell, 2001. "Small business credit availability and relationship lending: the importance of bank organizational structure," Finance and Economics Discussion Series 2001-36, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  5. Allen N. Berger, 2004. "Potential competitive effects of Basel II on banks in SME credit markets in the United States," Finance and Economics Discussion Series 2004-12, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  6. W. Scott Frame & Diana Hancock & Wayne Passmore, 2007. "Federal Home Loan Bank advances and commercial bank portfolio composition," Finance and Economics Discussion Series 2007-31, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. W. Scott Frame & Lawrence J. White, 2009. "Technological change, financial innovation, and diffusion in banking," Working Paper 2009-10, Federal Reserve Bank of Atlanta. [Downloadable!]
  8. Godbillon-Camus, Brigitte & Godlewski, Christophe, 2005. "Credit risk management in banks: Hard information, soft Information and manipulation," MPRA Paper 1873, University Library of Munich, Germany. [Downloadable!]
  9. O. Emre Ergungor, 2006. "Bank branch presence and access to credit in low-to-moderate income neighborhoods," Working Paper 0616, Federal Reserve Bank of Cleveland. [Downloadable!]
  10. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2007. "On government intervention in the small-firm credit market and its effect on economic performance," Working Paper 0702, Federal Reserve Bank of Cleveland. [Downloadable!]
  11. Berger, Allen N. & Rosen, Richard J. & Udell, Gregory F., 2005. "Does Market Size Structure Affect Competition? The Case of Small Business Lending," CEI Working Paper Series 2005-8, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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  12. Jaap W.B. Bos & Ryan C.R. van Lamoen & James W. Kolari, 2009. "Competition and Innovation: Evidence from Financial Services," Working Papers 09-16, Utrecht School of Economics. [Downloadable!]
  13. Kenneth P. Brevoort & John D. Wolken, 2008. "Does distance matter in banking?," Finance and Economics Discussion Series 2008-34, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  14. Elizabeth S. Laderman, 2008. "The quantity and character of out-of-market small business lending," Economic Review, Federal Reserve Bank of San Francisco, pages 31-39. [Downloadable!]
  15. Beck, Thorsten & de la Torre, Augusto, 2006. "The basic analytics of access to financial services," Policy Research Working Paper Series 4026, The World Bank. [Downloadable!]
  16. de la Torre, Augusto & Soledad Martinez Peria, Maria & Schmukler , Sergio L., 2008. "Bank involvement with SMEs : beyond relationship lending," Policy Research Working Paper Series 4649, The World Bank. [Downloadable!]
  17. Huberto M. Ennis, 2001. "On the size distribution of banks," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-25. [Downloadable!]
  18. Kwangwoo Park & George G. Pennachi, 2004. "Harming depositors and helping borrowers: the disparate impact of bank consolidation," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 227-242. [Downloadable!]
  19. W. Scott Frame & Lawrence White, 2002. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Working Papers 02-18, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  20. W. Scott Frame & Diana Hancock & Wayne Passmore, 2007. "Federal Home Loan Bank advances and commercial bank portfolio composition," Working Paper 2007-17, Federal Reserve Bank of Atlanta. [Downloadable!]
  21. Timo Baas & Mechthild Schrooten, 2005. "Relationship Banking and SMEs: A Theoretical Analysis," Discussion Papers of DIW Berlin 469, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  22. Cerqueiro, Geraldo & Degryse, Hans & Ongena, Steven, 2007. "Rules versus Discretion in Loan Rate Setting," CEPR Discussion Papers 6450, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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