Credit Where Credit is Due?: Race, Gender, and Discrimination in the Credit Scores of Business Startups

Abstract

This research seeks to understand the degree to which credit scores of new business startups are influenced by racial or gender considerations. It also examines the degree to which access to business credit lines is influenced by racial and gender-related factors that go beyond would-be borrowers’ credit scores. Using credit data from new startups, the analysis finds that, when controlling for firm and human capital characteristics, Black-owned startups receive lower than expected business credit scores. Moreover, when credit scores, firm characteristics, and human capital characteristics are taken into consideration, startups owned by people of color still receive business credit lines that are substantially lower than those of their Whiteowned counterparts, and startups owned primarily by women receive credit lines that are substantially lower than those owned primarily by men. A Blinder-Oaxaca decomposition suggests that credit lines for Black-owned businesses would more than double, Latino-owned businesses’ lines of credit would nearly triple, Asian-owned businesses’ lines of credit would more than triple, and those where the primary owners are women would be more than twice as large if their business lines of credit were determined in the same way as those for businesses owned primarily by Whites and by men.