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Linkages between regional characteristics and small businesses viability

Author

Listed:
  • Colleen Casey

    (Toyota North America)

  • Timothy Bates

    (Wayne State University)

  • Joseph Farhat

    (Central Connecticut State University)

Abstract

Our study identifies regional traits associated with small business viability, paying particular attention to bank lending to minority-owned firms. Although creditworthy minority business enterprises (MBEs) have less access to bank financing than similar White-owned firms, they have increased their nationwide employee numbers substantially since 2002, more so indeed than White-owned firms. The discouraged borrower incidence among creditworthy MBEs, nonetheless, is quite high. Given their limited access to financing, the dynamism displayed by these firms is surprising. To link regional characteristics to bank lending policies, local economic well-being measures and racial intolerance levels are used to identify areas where banks participate in Community Reinvestment Act (CRA) agreements, a proxy for their willingness to disregard owner race and firm geographic location when financing firms. We find that regional prosperity is positively linked to CRA agreement presence, while a legacy of institutionalized racism is negatively linked. We next explore whether the presence of local CRA agreements is linked to relatively fewer discouraged small business borrowers. The incidence of creditworthy borrowers discouraged from seeking bank financing drops significantly when CRA agreements are present locally.

Suggested Citation

  • Colleen Casey & Timothy Bates & Joseph Farhat, 2023. "Linkages between regional characteristics and small businesses viability," Small Business Economics, Springer, vol. 61(2), pages 617-629, August.
    • Handle: RePEc:kap:sbusec:v:61:y:2023:i:2:d:10.1007_s11187-022-00703-9
    DOI: 10.1007/s11187-022-00703-9
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