Academic journal article Entrepreneurship: Theory and Practice

Gender, Entrepreneurship, and Bank Lending: The Criteria and Processes Used by Bank Loan Officers in Assessing Applications

Academic journal article Entrepreneurship: Theory and Practice

Gender, Entrepreneurship, and Bank Lending: The Criteria and Processes Used by Bank Loan Officers in Assessing Applications

Article excerpt

Previous research provides unequivocal evidence that women-owned businesses start with both lower levels of overall capitalization and lower ratios of debt finance. Structural dissimilarities between male-owned and female-owned businesses explain most, but by no means all, of these contrasting funding profiles. Explanations of residual differences, viewed in terms of supply-side discrimination or demand-side debt and risk aversion, remain controversial. Using experimental and qualitative methodologies, this study explores the role of gender in bank lending decisions, focusing on the criteria and processes used by male and female loan officers. Results reveal similarities in the criteria used to assess male and female applicants but show modest differences in the emphasis given to certain criteria by male and female lending officers. The processes used by male and female lending officers to negotiate loan applications revealed the greatest differences.

Introduction

Previous research has frequently reported differences in the financing patterns of male-owned and female-owned businesses (Brush, 1992; Brush, Carter, Greene, Gatewood, & Hart, 2001; Coleman, 2000). Women-owned businesses tend to start up with lower levels of overall capitalization (Carter & Rosa, 1998), lower ratios of debt finance (Haines, Orser, & Riding, 1999), and much less likelihood of using private equity or venture capital (Brush et al., 2001 ; Greene, Brush, Hart, & Saparito, 2001).

Studies investigating gender-based differences in debt financing have focused on two related themes. First, researchers have sought to unravel the complex relationship between gender of entrepreneur and bank finance with regard to the volume of finance lent, the terms of credit negotiated, and the perceived attitudes of bank lending officers to female entrepreneurs (Coleman, 2000; Fay & Williams, 1993; Haynes & Haynes, 1999; McKechnie, Ennew, & Read, 1998; Verheul & Thurik, 2000). Second, researchers have attempted to demonstrate whether gender-based differences are a consequence of supply-side discrimination by bank lenders, demand-side aversion to debt or risk by women entrepreneurs, or simply the result of the structural dissimilarities of male-owned and female-owned businesses (Buttner & Rosen, 1989; Fabowale, Orser, & Riding, 1995; Orser & Foster, 1994; Read, 1998; Watson & Robinson, 2003).

Overall, the weight of research evidence considering gender, entrepreneurship, and bank lending suggests that while the bank financing profiles of male and female entrepreneurs are distinctly different, much--but not all--is attributable to structural dissimilarities. The research evidence also suggests that while women entrepreneurs perceive that they are treated differently by bank lending officers (Fabowale et al., 1995), there is almost no evidence of systematic gender discrimination by banks. Indeed, there is a growing recognition that women entrepreneurs constitute an important new market for banks, and it is difficult to argue that it is within the banks' interest to deliberately, much less systematically, exclude this growing market. The debate has continued largely because of dissatisfaction with existing explanations, coupled with the methodological difficulties facing researchers in providing clear and unequivocal evidence (Haines et al., 1999; Mahot, 1997).

This study was designed to investigate the role of gender in bank lending, focusing on both the sex of the loan applicant and the sex of the bank loan officer as key elements of the gender, entrepreneurship, and bank lending nexus. Using experimental and qualitative methodologies, data are drawn from 35 bank loan officers (19 female, 16 male) employed by one of the major U.K. clearing banks. Data were collected in two stages. The first stage replicated the experimental protocol originally used by Fay and Williams (1993) to investigate whether the loan assessment criteria used by male and female bank loan officers differed either by the sex of the bank loan officer or by the sex of the loan applicant. …

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