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How Much Does Credit Matter?

Credit-MattersHow Much Does Credit Matter for Small Business Success in the United States?

Cesare Fracassi and Shimon Kogan, UT Austin; Mark Garmaise, UCLA Anderson; Gabriel Natividad, NYU Stern

First published August 2013

Researchers partnered with Accion Texas to study that question over the course of five years. Their answer? “A lot.” They determined that “[s]tartups receiving funding are dramatically more likely to survive, enjoy higher revenues and create more jobs,” and that  “loans are more consequential for firm survival among entrepreneurs with [some post-secondary] education and less senior managerial experience.” Receiving a microloan can increase a business’s chance of surviving by over 50%.

The team looked at startup businesses that applied for loans using Accion Texas’s MMS system. Because MMS uses a proprietary automated review process to recommend approval or denial of initial applications, the team was able to determine the effect microloans have by comparing borrowers who were otherwise similar, except for whether they received a loan or not.

Applicants who receive a loan…

  • are 54% more likely to qualify for future business loans
  • are 54% more likely to survive
  • increase their sales by an average of 41%


Some borrowers are more likely to benefit from receiving a loan than others. Applicants with some college were more likely to go out of business if they were denied a loan than were borrowers with no more than a college education. “Better educated entrepreneurs are more constrained by restricted access to capital,” they explain. Interestingly, both more and less educated borrowers were equally likely to use a loan to acquire secured financing.


Borrowers who have never been a senior manager before — e.g., president, vice president or chief financial officer — benefited more from receiving a loan. “Overall survival rates are higher for entrepreneurs with senior managerial experience,” they note, and loans “to former senior executives do little to benefit them … because they can access credit from other financial institutions. … External finance is hard to substitute for when entrepreneurs lack experience running a business.” Borrower’s experience within the industry did not appear to affect whether the loan made a difference in their survival rate, however — both experience and inexperienced borrowers saw the same benefit for receiving a loan.

Loan Purpose

The purpose of the loan matters, too. 21% of applicants in the study used their loan to supply working capital — but these loans had no effect on firm survival. Firms who took out loans for other reasons — to purchase needed equipment, or to grow the business — were much more likely to benefit from receiving a loan.

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