Abstract

Do banks redline urban minority communities? While redlining per se has disappeared in recent decades, the view that financial institutions are averse to lending in minority neighborhoods persists. Regarding bank lending to small businesses specifically, scattered evidence of varying quality supports the hypothesis of such lending aversion, but this evidence is dated and not comprehensive (see, for example, Bates, 2011; Immergluck, 2004). Examining firms located in metropolitan areas, we have analyzed Kauffman Firm Survey (KFS) data, contrasting the outcomes of loan applications submitted to financial institutions by small firms located in minority neighborhoods to those of businesses in predominantly nonminority areas. KFS data currently provide the only nationally representative database containing firm-specific information on geographic location as well as dollar amounts and sources of debt capital actually being used by small firms. The KFS data track small businesses starting operations in 2004 and their particular strength is inclusion of annual follow-up information on new capital raised by individual firms in the years subsequent to startup.

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