Small Business Credit Scoring and Credit Availability

Allen N. Berger and W. Scott Frame
Working Paper 2005-10
May 2005

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U.S. commercial banks are increasingly using credit scoring models to underwrite small business credits. This paper discusses this technology, evaluates the research findings on the effects of this technology on small business credit availability, and links these findings to a number of research and public policy issues.

JEL classification: G21, G28, G34, L23

Key words: banks, credit scoring, small business

The opinions expressed do not necessarily reflect those of the Federal Reserve Board, the Federal Reserve Bank of Atlanta, or their staffs. The authors thank Will Jackson for encouraging us to write the paper, Leora Klapper for helpful suggestions, and Cordell Wise and Marc Bernstein for insightful conversations. The authors also thank Nate Miller, Mike Padhi, Aruna Srinivasan, Larry White, and Lynn Woosley for prior coauthored work on small business credit scoring without which this paper would not be possible. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to Allen N. Berger, Senior Economist, Board of Governors of the Federal Reserve System, Washington, D.C. 20551, Senior Fellow, Wharton Financial Institutions Center, Philadelphia, Pennsylvania 19104,, or W. Scott Frame (contact author), Financial Economist and Associate Policy Adviser, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309,