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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Credit Scoring and the Availability, Price, and Risk of Small Business Credit
Allen N. Berger, W. Scott Frame, and Nathan H. Miller

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.

Keywords: Banks, credit scoring, small business, risk

Full paper (137 KB PDF)

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Last update: June 4, 2002