Black and White: Access to Capital Among Minority-Owned Start-ups

• Main Authors: Fairlie, R. (Author), Robb, A. (Author), Robinson, D.T (Author)
• Format: Article
• Language: English
• Published: INFORMS Inst.for Operations Res.and the Management Sciences 2022
• Subjects: access to capital; Access to capital; Black start; Credit scores; Entrepreneur; entrepreneurs; financing; Financing; Local banks; minorities; Minority; New business ventures; Operations research; racial inequality; Racial inequality; start-ups; Start-ups
• Online Access: View Fulltext in Publisher

 We used confidential and restricted-access data from the Kauffman Firm Survey and matched administrative data on credit scores to explore racial disparities in access to capital for new business ventures. The novel results on racial inequality in start-up financing indicate that Black-owned start-ups start smaller and stay smaller over the entire first eight years of their existence. Black start-ups face more difficulty in raising external capital, especially external debt. We find that disparities in creditworthiness constrain Black entrepreneurs, but perceptions of treatment by banks also hold them back. Black entrepreneurs apply for loans less often than White entrepreneurs largely because they expect to be denied credit, even when they have a good credit history and in settings where strong local banks favor new business development. Copyright: © 2021 INFORMS