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Are Loans to Minority-Owned Firms Mispriced?

Author

Listed:
  • William D. Bradford
  • Chunbei Wang
  • Magnus Lofstrom
  • Michael Verchot

Abstract

We use survey data on small business loans granted in 2022 and 2023 to explore racial disparities in the terms of loans to small firms. Similar data have not been available since the 2003 Survey of Small Business Finances. We find that for Hispanic-, Asian-, and Black-owned firms, the interest rate paid was higher than for comparable White-owned firms, after considering the controls for risk that determine the interest rate on loans. Another component of credit is collateral. We find that cosignatures from third parties are required more frequently for minority firms than is justified by our economic analysis.

Suggested Citation

  • William D. Bradford & Chunbei Wang & Magnus Lofstrom & Michael Verchot, 2025. "Are Loans to Minority-Owned Firms Mispriced?," AEA Papers and Proceedings, American Economic Association, vol. 115, pages 477-482, May.
    • Handle: RePEc:aea:apandp:v:115:y:2025:p:477-82
    DOI: 10.1257/pandp.20251122
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    References listed on IDEAS

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    1. Ram, Rati, 1982. "Composite indices of physical quality of life, basic needs fulfilment, and income : A principal component representation," Journal of Development Economics, Elsevier, vol. 11(2), pages 227-247, October.
    2. Basudeb Biswas & Frank Caliendo, 2002. "A Multivariate Analysis of the Human Development Index," Working Papers 2002-11, Utah State University, Department of Economics.
    3. Rashida Haq & Uzma Zia, 2013. "Multidimensional Wellbeing: An Index of Quality of Life in a Developing Economy," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 114(3), pages 997-1012, December.
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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