The Federal Reserve sponsored a two-day conference this month on small- business lending. The last Research Scan highlighted a number of studies focused on discrimination against low-income and minority small-business borrowers.

This column covers other research presented at the conference. Copies of these studies will be available this summer on the Fed's Web site, www.federal reserve.gov.

Small businesses in large cities are the least likely to turn to big banks for credit, according to George W. Haynes of Montana State University and Charles Ou and Robert Berney of the Small Business Administration.

"The fact that smaller businesses are less likely to utilize larger banks, even in urban markets, suggests that financial capital access from larger banks is more difficult for smaller businesses," they write in "Small Business Borrowing from Large and Small Banks."

Lines of credit are especially difficult to obtain from larger banks, the researchers find. This may be, they write, because lines of credit are not asset-backed loans, which means the lender must have significant confidence in the borrower's ability to repay.

Finally, the researchers write that small businesses may prefer community banks to big banks. This could be because community banks are more familiar with the businesses of small firms and are more willing to adjust loan terms to meet borrowers' needs, they write.

Credit scoring may be a mixed bag for small businesses in lower-income neighborhoods, write Michael S. Padhi, Aruna Srinivasan, and Lynn W. Woosley of the Federal Reserve Bank of Atlanta.

For banks operating outside their home markets, the use of credit scoring results in a higher percentage of loans going to small businesses in lower-income areas.

"Scoring banks allocate a higher portion of their loans in low- and moderate-income, out-of-market tracts," they write in "Credit Scoring and Small Business Lending in Low- and Moderate-Income Communities." Yet the results are reversed for in-market loans. At banks with a branch in the neighborhood, the use of credit scoring reduces the proportion of small- business loans extended in low-income areas, they write.

State bankruptcy laws affect the ability of unincorporated small businesses to obtain credit, according to Michelle J. White of the University of Michigan and Jeremy Berkowitz of the Federal Reserve Board.

The researchers compare credit availability in states that let consumers protect much of their personal wealth in bankruptcy to those that set strict limits on personal property exemptions.

They find that unincorporated small businesses in states that let consumers keep most possessions in bankruptcy are more likely to be denied credit than companies in states with more restrictive bankruptcy laws.

They also find that banks extend relatively smaller loans to businesses in states with loose bankruptcy laws than they do to firms in strict bankruptcy states.

These differences disappear once a small business incorporates, because owners no longer would be liable for the firm's debts, they write in "Bankruptcy and Small Firms' Access to Credit." Research Scan runs on the second and last Fridays of the month. Submissions should be sent to American Banker, 1325 G St. NW, suite 900, Washington, D.C. 20005.

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