The Borrowing Experience of Black and Hispanic-Owned Small Firms: Evidence from the 1998 Survey of Small Business Finances (Manuscripts‪)‬

ABSTRACT Commercial bank loans are a primary source of external capital for firms that are too small to access the public debt and equity markets. Thus, the availability of credit at a reasonable cost is a key concern for small firms. This article explores the extent to which black and Hispanic-owned firms are willing to pursue commercial bank loans and the extent to which they are able to obtain them. Results reveal that, although black and Hispanic-owned firms were just as likely to apply for a loan as white-owned firms, they were significantly less likely to be approved for one. Further, black and Hispanic-owned firms were significantly more likely to avoid applying for loans because they believed they would be denied. These findings did not reveal any differences in the interest rates charged on approved loans to black, Hispanic, or white-owned firms.