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

  • Bates, Timothy


    (Wayne State University, Detroit)

  • Lofstrom, Magnus


    (Public Policy Institute of California)

  • Servon, Lisa


    (The New School)

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. Our 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, our analysis yields no evidence that financial capital constraints are a significant barrier to small-firm creation.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5212.

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Length: 40 pages
Date of creation: Sep 2010
Date of revision:
Publication status: published in: Economic Development Quarterly, 2011, 25 (3), 255 - 266
Handle: RePEc:iza:izadps:dp5212
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