Credit Scoring and the Availability of Small Business Credit in Low‐ and Moderate‐Income Areas

Abstract

Abstract This paper estimates that credit scoring is associated with about a $3,900 increase in small business lending per sample banking organization, per low‐ and moderate‐income (LMI) area served, and this effect is roughly equivalent to that estimated for higher‐income areas. For our sample, this corresponds to a $536 million increase in small business credit in LMI areas in 1997 than otherwise would have been the case. This effect appears to be driven by increased out‐of‐market lending by banking organizations, as in‐market lending generally declines. Overall, it does not appear that credit scoring has a disparate impact on LMI areas.