Academic journal article Entrepreneurship: Theory and Practice

Gender, Structural Factors, and Credit Terms between Canadian Small Businesses and Financial Institutions

Academic journal article Entrepreneurship: Theory and Practice

Gender, Structural Factors, and Credit Terms between Canadian Small Businesses and Financial Institutions

Article excerpt

Do credit terms differ between female and male small business owners? This question, fraught with emotional overtones and inconclusive findings, has received considerable attention in the public press and in academic research. If, indeed, differences do exist, to what extent are structural differences in borrowers' eligibility accountable? Conversely, what role (if any) does systematic gender discrimination play in determining any discrepancies? The aim of this study is to report on research that sheds further light on these issues. To this end, this study has three objectives.

The first is to identify factors that are most closely associated with credit terms. Potential structural differences include the form, size, industry, and track record of an enterprise. These are some measures of the risk associated with lending to a business. The second objective is to determine if factors such as these risk measures are also correlated with gender of the owner. Gender-related disparities in business attributes, quite independently of systematic gender discrimination, may lead to discrepancies in credit terms, discrepancies that may appear as if gender-related. The third objective is to investigate whether or not credit terms differ between female-owned and male-owned enterprises after accounting for structural differences in business attributes. This study investigates five credit terms: rates of loan turndowns, rates of requests for spousal co-signature, ratios of collateral to line of credit, ratios of amount received to amount applied for, and interest rates.


Three streams of research literature relate to the topic of this study: the general literature on lending criteria; the literature on women and small business; and the integrated literature.

The general literature on bank lending reveals financial institutions to be low-risk lenders (Thornton, 1981; Poapst, 1981; Grant, 1986), a finding of little surprise. Several researchers have investigated the relationship between measures of business risk and credit terms (for example, Grant, 1986; Wynant & Hatch, 1991). One of the few consistent findings was that firm size plays a central role in determination of access to and terms of credit. For example, Haines, Riding, and Thomas (1989) found that the size of the firm was the one variable among many potential determinants that correlated with interest rates on bank loans.

Other research on lending criteria and the bank - small business interface includes that of Thornton (1981), who found that the quality of financial management was a factor in lending decisions. Fertuck (1981) noted that small businesses may receive more favorable credit terms from small community-based financial institutions such as credit unions and caisses populaires.(1) In general, however, this literature has not explicitly allowed for the possibility that gender might be one of several factors which, acting jointly, determine terms of credit. The singular increase in women-owned businesses in recent years has also given rise to a burgeoning literature on business problems that are specific to women. This second stream of literature has identified legal status, age, industrial sector, level of sales, and rate of sales growth as some factors that differ systematically between men and women business owners (Schwartz, 1979; Hisrich & Brush, 1986a, 1986b; Litton, 1987; Collom, 1982).

This literature also implied that gender-based differences on these factors may account for some portion of the financial difficulties that women small business owners often perceive (for example, Kryzanowski & Bertin-Boussu, 1984; Stevenson, 1986). This stream of literature, however, has not determined whether or not the credit experiences of female and male business owners actually differ. Many of the studies in this stream of the literature, while citing gender-related problems with respect to credit, did not compare the experiences of women business owners with benchmark samples of men business owners. …

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