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SBA study: Hard to get loans after surviving bankruptcy

Small businesses that have previously filed for bankruptcy have about a 24% higher likelihood of being denied a loan and are charged interest rates at least 1% higher than other firms, according to a study released by the U.S. Small Business Administration (SBA). The good news, however, is that these firms are no more burdened than other small firms by poor cash flow, high health insurance costs, or excessive taxes, and they attain similar firm sizes. The report finds that firms owned by African and Latino Americans are even more likely to be denied loans and charged higher interest rates.

“Small businesses filing for bankruptcy have an opportunity for a new start. This new start is hampered by the challenges of obtaining new loans. This can impede innovation and job creation,” said Chief Counsel for Advocacy Winslow Sargeant.

The study, “Beyond Bankruptcy: Does the Bankruptcy Code Provide A Fresh Start to Entrepreneurs?” by Aparna Mathur, (http://www.sba.gov/sites/default/files/Bankruptcy%20Report_0.pdf) finds that owners of 2.6% of firms have filed for bankruptcy at some point in the previous seven years. Credit rationing of previously bankrupt firms leads to a class of discouraged borrowers who are significantly less likely even to apply for a loan, according to the study.

The research relies on data from the National Survey of Small Business Finances as a basis for the analysis. Surveys were conducted by the Federal Reserve Board in 1993, 1998, and 2003. The full study is available online at www.sba.gov/advocacy.


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