No. 403 April 2013
Access to Capital among Young Firms, Minority-owned Firms,
Women-owned Firms, and High-tech Firms
By Alicia Robb, Marin Consulting, LLC
San Rafael, CA  pages. Under contract number SBAHQ-11-M-0203
The availability of capital is crucial for small business
startup, survival, and growth. This study investigates
how the youngest small firms operated and were
financed during the evolving financial environment of
the recent Great Recession, especially high-tech firms
and firms owned by women and minorities.
The major constraint limiting the growth, expansion,
and wealth creation of small firms—especially
women- and minority-owned businesses—is inadequate
capital. Because of their size, these small firms
typically have almost no access to external funds
from public markets and are bank dependent. Small
firms have little or no collateral and, as relatively
young firms, lack an extensive history from which
future firm or management performance can be surmised,
even though the firm may have high growth
potential. Research also shows that bank lending is
adversely affected by a tightening of monetary policy,
regulatory changes that tighten capital requirements,
and bank capital crunches.
Studies indicate that women entrepreneurs have
less access to financial capital or make less use of
it than male entrepreneurs. Research shows that the
characteristics of women-owned firms may help
explain why women obtain smaller loans, pay higher
interest rates, must put up higher collateral, and are
dissatisfied with the bank loan process.
For instance, younger and smaller businesses, as
women-owned businesses typically are, tend to be
less favored by bankers, regardless of the gender of
On the equity side, women typically have limited
social interaction with venture capital firms, and are
under-represented among fast-growth and high-tech
businesses. They also rely more on informal funding
methods and self-financing. These characteristics
may help explain the gender disparity in access to
For many minorities, starting out at lower wealth
levels also acts as a barrier to entrepreneurship.
• Skill development and training have a critical
role in improving the economic performance
of women and minority entrepreneurs; targeted
initiatives might help them build more
• Encouraging enrollment in science, technology,
engineering, and math disciplines is
another option for women and minority prospective
• Developing and expanding networks can help
women and minority business owners access
needed resources such as financial capital.
High tech firms had higher levels of financial capital;
surprisingly, they were more dependent on formal
debt financing than were similar firms that were
not high tech firms at the start-up phase and in subsequent
years before and during the financial crisis.
Both women- and minority-owned businesses
(African American- and Hispanic-owned firms)
showed some similar disparities in their capital
structure relative to firms owned by men and nonminorities.
They used a different mix of equity and
debt capital and were more reliant on owner equity
investments. The average women- or minority-
owned business operated with much less financial
capital, even after controlling for other factors
including credit score.
During the financial crisis period, many women
and minority entrepreneurs of new startups were
less likely to apply for a loan, fearing denial. The
researchers controlled for some characteristics that
were likely to affect bank borrowing, including legal
form of organization, credit score, and type of business.
The evidence showed that, compared with
nonminority owners, minority owners of young firms
were significantly less likely to have their loan applications
Scope and Methodology
This study uses data from the Kauffman Firm Survey
(KFS) to examine the financing patterns of young,
minority-owned, women-owned, and high-tech firms.
The KFS is a cohort of businesses that began operations
in 2004 and were followed through 2010. The
author used owner demographics at the firm level to
define the gender and minority status of the primary
owner. For firms with multiple owners, the primary
owner was indicated by the largest equity share, and
where there were two or more owners with equal
shares, hours worked, along with other variables,
were rank-ordered to identify a primary owner.
Both univariate and multivariate tests were used
to examine the financial environment and capital
access of these firms. Three models using logistic
regression estimated separately the probability of
(1) applying for a loan, (2) not applying for a loan
when credit is needed for fear of loan denial, and
(3) receiving a loan. Several control variables were
This report was peer-reviewed consistent with
Advocacy’s data quality guidelines. More information
on this process can be obtained by contacting
the director of economic research by email at
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This document is a summary of the report identified above, developed
under contract for the Small Business Administration, Office
of Advocacy. As stated in the report, the final conclusions of the full report
do not necessarily reflect the views of the Office of Advocacy. This summary
may contain additional information, analysis, and policy recommendations
from the Office of Advocacy.