Keywords: Banks, credit scoring, small business, risk
Abstract: We examine the economic effects of small business credit scoring
(SBCS) and find that it is associated with expanded quantities, higher
average prices, and greater risk levels for small business credits
under $100,000. These findings are consistent with a net increase in
lending to relatively risky "marginal borrowers" that would otherwise
not receive credit, but pay relatively high prices when they are
funded. We also find that: 1) bank-specific and industrywide learning
curves are important; 2) SBCS effects differ for banks that adhere to
"rules" versus "discretion" in using the technology; and 3) SBCS
effects differ for slightly larger credits.
Full paper (137 KB PDF)
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Last update: June 4, 2002