Are Loans to Woman-Owned Firms Mispriced?

• In Event: Minority and Immigrant Entrepreneurship

Abstract

Credit mispricing occurs when lenders adjust the terms of credit to borrowers based on factors unrelated to the borrower’s financial risk—such as the borrower’s gender—rather than relevant economic and creditworthiness indicators. We use survey data on small business loans granted in 2022 and 2023 to explore gender disparities in the terms (interest rate and collateral) of loans to small firms. Similar data has not been available since the Federal Reserve’s 2003 Survey of Small Business Finances. We find that the interest rate charged to woman-owned firms is higher than the rate charged to man-owned firms, after considering controls for risk that determine the interest rate on loans. We compare the interest rates across six types of lenders and across racial minority groups. Another component of loan terms is collateral. We did not find differences between woman-owned firms and man-owned firms in measures of collateral required for loans, after considering controls for risk.

Author

• William D Bradford
  Presenting Author