A measurement of the small business credit gap and the use of credit scoring by small financial institutions.

摘要

Technological and regulatory changes and the consolidation trends of the last two decades are factors affecting the credit situation for small businesses. This dissertation begins with a theoretical framework summarizing potential factors that may lead to credit constraints for small businesses. An empirical model is used to measure the magnitude of the possible credit gap. Based on industrial economic theory, small financial institutions can play a role in reducing this credit gap. Because of the higher risk of small business customers, sustainability is of primary concern for small financial institutions. As an innovative solution, credit scoring for use by small financial institutions is then introduced and its effectiveness is demonstrated.;A theoretical background and general characteristics of the credit market, such as credit rationing, are first presented. Next, the phenomenon of less credit supply in rural areas or poor communities is analyzed, as well as how consolidation trends in the banking industry can contribute to the credit gap.;This dissertation then tests empirically whether credit constraints facing small businesses do exist. Possible credit constraints are quantified using the Call Reports of the 1990s and data from The National Survey of Small Business Finance, 1998. The potential credit gap is determined by the difference between the expected debt level and the actual debt level.;Small financial institutions are usually viewed as having the informational advantage and organizational flexibility to lend to small businesses. However, specializing in small businesses loans can bring high financial risk to small financial institutions because of the higher default risk of small businesses. The practice of credit scoring is introduced as a solution. Client data of one small financial institution, Community Ventures Corporation (CVC) of Kentucky, are used to test the effectiveness of the credit-scoring model.;The results of the tests on small-business lending presented in this dissertation show that: First, a credit gap does exist for small-business firms and its magnitude is quantified; Second, credit scoring can help small financial institutions by effectively revealing the characteristics of unqualified customers, guaranteeing the sustainability of small financial institutions and an expansion of their services to more small business customers.;Keywords. Credit Gap, Credit Risk, Credit Scoring, Information Asymetry, Small Business Lending