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Why Have Lending Programs Targeting Disadvantaged Small Business Borrowers Achieved So Little Success in the United States?

Author

Listed:
  • Timothy Bates

    (Wayne State University, Detroit, MI, USA, tbates7893@gmail.com)

  • Magnus Lofstrom

    (Public Policy Institute of California, San Francisco, CA, USA)

  • Lisa J. Servon

    (New School University, New York, NY, USA)

Abstract

Small business lending programs designed to move disadvantaged low-income people into business ownership have been difficult to implement successfully in the U.S. context. Based in part on the premise that financing requirements are an entry barrier limiting the ability of aspiring entrepreneurs to create small businesses, these programs are designed to alleviate such barriers for low net-worth individuals with limited borrowing opportunities. The authors’ analysis tracks through time nationally representative samples of adults to investigate the role of financial constraints and other factors delineating self-employment entrants from nonentrants. Paying particular attention to lines of business most accessible to adults lacking college credentials and substantial personal net worth, the authors’ analysis yields no evidence that financial capital constraints are a significant barrier to small-firm creation.

Suggested Citation

  • Timothy Bates & Magnus Lofstrom & Lisa J. Servon, 2011. "Why Have Lending Programs Targeting Disadvantaged Small Business Borrowers Achieved So Little Success in the United States?," Economic Development Quarterly, , vol. 25(3), pages 255-266, August.
    • Handle: RePEc:sae:ecdequ:v:25:y:2011:i:3:p:255-266
    DOI: 10.1177/0891242411409206
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    1. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
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    Cited by:

    1. Paige Clayton, 2024. "Different outcomes for different founders? Local organizational sponsorship and entrepreneurial finance," Small Business Economics, Springer, vol. 62(1), pages 23-62, January.
    2. William D. Bradford, 2014. "The “Myth†That Black Entrepreneurship Can Reduce the Gap in Wealth Between Black and White Families," Economic Development Quarterly, , vol. 28(3), pages 254-269, August.
    3. Craig Wesley Carpenter & Scott Loveridge, 2018. "Differences Between Latino-Owned Businesses and White-, Black-, or Asian-Owned Businesses: Evidence From Census Microdata," Economic Development Quarterly, , vol. 32(3), pages 225-241, August.
    4. Craig Wesley Carpenter & Scott Loveridge, 2020. "Business, Owner, and Regional Characteristics in Latino-owned Business Growth: An Empirical Analysis Using Confidential Census Microdata," International Regional Science Review, , vol. 43(3), pages 254-285, May.
    5. Craig Wesley Carpenter, 2016. "The Dynamics Of Latino-Owned Business With Comparisions To Other Ethnicities," Working Papers 16-33, Center for Economic Studies, U.S. Census Bureau.
    6. Naiquan Liu & Xinyue Ye & Huimin Yang & Ying Li & Mark Leipnik, 2014. "Manufacturing firm heterogeneity and regional economic growth difference in China," Regional Science Policy & Practice, Wiley Blackwell, vol. 6(2), pages 213-230, June.
    7. Stephan J. Goetz & Anil Rupasingha, 2014. "The Determinants of Self-Employment Growth," Economic Development Quarterly, , vol. 28(1), pages 42-60, February.
    8. Craig Wesley Carpenter, 2016. "The Impact Of Latino-Owned Business On Local Economic Performance," Working Papers 16-34, Center for Economic Studies, U.S. Census Bureau.
    9. Craig Wesley Carpenter & Scott Loveridge, 2019. "A spatial model of growth relationships and Latino-owned business," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 63(3), pages 541-557, December.
    10. Timothy Bates & Alicia Robb, 2013. "Greater Access to Capital Is Needed to Unleash the Local Economic Development Potential of Minority-Owned Businesses," Economic Development Quarterly, , vol. 27(3), pages 250-259, August.

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    More about this item

    Keywords

    bootstraps; micro-lending; entrepreneurship;
    All these keywords.

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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