Cesare Fracassi and Shimon Kogan, UT Austin; Mark Garmaise, UCLA Anderson; Gabriel Natividad, NYU Stern
A team of researchers digs into five years worth of lending data from Accion Texas and reports that startup small businesses that receive a microloan are dramatically more likely to survive, enjoy higher revenues and create more jobs.
Resource Category: Access to Capital
Sustainable Financial Institution Engagement
This report for the CFED looks at the Bank On programs that first emerged in San Francisco and have since moved piecemeal across the country.
Implications of Access to Capital by Young Firms
In the aftermath of the latest financial crisis, policy-makers at all levels are concerned about the impact of the crisis on access to financial resources by young firms, particularly as major changes occur in bank-lending practices and uncertainties surround the implementation of financial reform legislation. In this paper, we analyze the types and sources of financing used in young firms over the years 2007 through 2009. We find differential outcomes for firms who applied for loans and received them, those who applied and were denied, and those which did not apply for fear of denial. We explore the factors that mitigate the decision to apply for a loan and the subsequent outcomes of firm survival and growth. Our work provides insights into the relative importance of supply and demand for financing both prior to and subsequent to the financial shocks. We leverage various measures and perceptions to disentangle the decision to seek bank loans from the likelihood of receiving a loan based on credit scores and other objective measures. We find that both tangible and intangible assets, particularly intellectual property, play a significant role in receipt of bank loans in the firms’ early years of operation.
Structure of Nonfinancial Industries
We exploit variation in commercial bank capital ratios across states to identify the impact of higher capital ratios on firm creation and size in the manufacturing industries. We control for omitted financial and nonfinancial variables that may affect firm dynamics by exploiting variation in external finance dependence across industries. Our panel regressions suggest that, for industries dependent on external finance, a percentage point increase in the capital ratio has no statistically significant effect on firm creation but leads to a decline in average firm size, as measured in employees, of 0.7 to 1.4 percent the following year and a decline of 4 to 6 percent in the long term. The number of firms might not necessarily decline in response to more limited access to finance as setting up a business may not be that costly and some of the displaced workers may actually establish new businesses. Our results highlight the potential effects that tightening capital adequacy standards, such as Basel III, may have on firm dynamics in the industries dependent on external finance.
CDFI Growth & Sustainability
This report will increase our understanding of challenges CDFIs face at different points in their development.
Are Big Banks Failing Consumers?
This report examines the six largest banks in California to evaluate the extent to which bank products and services are accessible to California’s under-served communities.
Helping Women Business Owners Access Capital
A study released by the National Women’s Business Council (NWBC) features successful programs from around the country which provide women business owners with the knowledge and assistance to secure capital.
Women-Led Firms and VC Investing
This study on venture capital funding for women- and minority-led businesses confirms that despite the growth in equity investment, women and minority entrepreneurs still are receiving only a very small share of equity capital. Three possible reasons why such firms may receive less equity investment are: choice of industry, geographic location, and business size.