Abstract

This dissertation consists of three self contained essays that explore whether and if so how race and/or relationships impact small business owners' access to and use of financial capital and services. The first essay examines how use of a secondary form of credit, personal credit card may differ by race. The second essay examines race and length of banking relationships, a factor that prior studies found increased access to financial products. The last essay examines relationships and whether co-ethnic relationships impact loan outcomes in community development financial institution.

In the first essay I use data from the 1998 National Survey of Small Business Finance to estimate the probability that a small business owner uses a personal credit card. I find that owner's education, being a sole proprietor and being discouraged from applying for loan for fear of rejection to be significant factors in determining personal credit card use.

The second essay tests whether race influences the length of banking relationship, an important variable in the determination of small business loan decisions that typically results in more favorable loan outcomes for small business owners. Similar to the first essay I use data from the 1998 National Survey of Small Business Finance. I find that being Black or Hispanic results in a shorter length of banking relationships.

The third essay examines the role of relationships and race in small business loan funds, an understudied and non mainstream financial institution. From interviews primarily with loan officers from ten Los Angeles County community development financial institutions, I find that loan decisions are based on information gained from relationships formed throughout the loan process opposed to banks that rely primarily on existing relationships (pre-loan decision) and micro credit institutions that rely on relationships post-loan decision. Findings from this study also demonstrate that community development financial institutions that provide small business loans have adopted many practices found in private sector institutions such as, hiring contractors when demand for their product is high and diversifying their source of revenues.