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June 2020 Revised August 2024
JEL classification: D31, E24, G21, O15
Authors: Manthos Delis, Fulvia Fringuellotti, and Steven Ongena
How does credit access for small business owners affect their income? A bank’s cutoff rule, employed in the decision to grant loans and based on applicants’ credit scores, provides us with the exogenous variation needed to answer this question. Analyzing uniquely detailed loan application data, we find that application acceptance increases recipients’ income five years later by more than ten percent compared to denied applicants. Looking across various salient groups of applicants, we find that relatively constrained groups, i.e. new, levered, or high-growth firms, female-owned firms, or firms located in low-income regions, display higher responses to credit origination. This effect is driven by the use of borrowed funds to make investments and mostly reflects the upward mobility of poor individuals.
Manthos Delis declares that she has no relevant or material financial interests that relate to the research described in this paper.
Fulvia Fringuellotti
Fulvia Fringuellotti declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Steven Ongena
I declare that I have no relevant or material financial interests that relate to the research described in the paper Delis, Manthos, Fulvia Fringuellotti and Steven Ongena, 2020, Credit, income and inequality. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
