Tuesday, March 13, 2007

Credit Scoring; Small Firm Growth Rates; Competition

Survey Based Assessment of Financial Institution Use of Credit Scoring for Small Business Lending:
The introduction of credit scoring by banks for small business loans may help increase small businesses’ access to credit, according to a study released by the Office of Advocacy of the U.S. Small Business Administration. The report also found that relationships continue to be the dominant factor in banks’ decisions to lend to small businesses.
Written by Drs. Charles and Adrian Cowan with funding from the Office of Advocacy, A Survey Based Assessment of Financial Institution Use of Credit Scoring for Small Business Lending, shows that banks, particularly those in urban areas, are moving towards the use of both owner and business credit scoring as a key metric in the small business loan decision.
A copy of this report can be obtained here, and the research summary here. Should you need further information, please feel free to contact Charles Ou at (202) 205-6533 or advocacy@sba.gov.
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Volatility and Asymmetry of Small Firm Growth Rates Over Increasing Time Frames:
While previous research found many one year large expansions and contractions among businesses, NuTech researchers Rich Perline, Robert Axtell, and Daniel Teitelbaum under contract with Advocacy find that this volatility decreases very little over a longer time period. The results indicate that a firm's growth trend has persistence. The study also finds more large employment swings among shrinking than expanding businesses.
The report, "Volatility and Asymmetry of Small Firm Growth Rates Over Increasing Time Frames," can be obtained from here, and the research summary here.
Should you need further information, please feel free to contact Brian Headd at (202) 205-6533 or advocacy@sba.gov.
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New entrants in local economies at first harm, then help, already existing firms, according to a working paper today by the Office of Advocacy of the U.S. Small Business Administration. The paper examines how the entrance of new establishments within a 150-mile radius of young firms affects the existing firms’ profitability.

The working paper, Friends or Foes: The Spatial Dynamic Between Established Firms and Entrants, written by Lawrence Plummer with funding from the Office of Advocacy, examines whether new establishments harm existing firms’ profitability due to increased competition, or help increase profits due to positive spillover effects. The paper discovers that the effect of new entrants is not an either/or proposition. In the first year of entry, the effect on existing firms’ financial performance (return on assets) is negative. However, after three years the effect on performance reverses and becomes positive.

A copy of this study is located here, and the research summary is available here. Should you need further information, please feel free to contact Brian Headd at (202) 205-6533 or advocacy@sba.gov.

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