The Federal Reserve sponsored a two-day conference this week on small- business lending. About half the studies presented focused on whether lenders discriminate against minority businesses. Copies of the studies will be available this summer on the Fed's Web site,

Discrimination may be responsible for a 25% higher loan rejection rate for black-owned small businesses than for white-owned companies, according to Phillip B. Levine of Wellesley College, David G. Blanchfield of Dartmouth College, and David J. Zimmerman of Williams College.

Using data from the Fed's 1993 National Survey of Small Business Finances, the researchers find that black business owners believe they are less likely to get credit. This discourages some from applying for loans.

They also write that denial rates on loans to black-owned businesses are higher than on loans to firms owned by whites, even after controlling for creditworthiness and similar factors. Without controlling for other variables, black-owned firms were 42% more likely to be rejected for credit than white-owned companies.

Another study explores loan rejection rates for black- and white-owned small businesses. Ken Cavalluzzo of Georgetown University, Linda Cavalluzzo of the Center for Naval Analysis, and John Wolfken of the Fed look at credit histories, credit risk scores, lender relationships, education and experience of owners, and geography for black and white businesses.

"Despite the role played by these important explanatory variables, African-American-owned firms still faced substantially higher denial rates than businesses owned by white males," they write.

The economists also find that minority firms wanted more credit than they were able to obtain. Application rates from minorities would have been higher if these groups thought they would receive credit, they write.

The location of a small business affects its chance of receiving credit, according to Raphael W. Bostic and K. Patrick Lampani of the Fed.

The researchers based the study on loan denial rates for white- and minority-owned firms. Before location is taken into account, they find that black-owned firms are less likely to get credit than white-owned firms. But they find no differences in denial rates between whites and Asian or Hispanic companies.

Incorporating the location of the firm into the analysis causes much of the difference in denial rates to disappear, they write. For instance, they find similar denial rates for white- and black-owned companies in similar neighborhoods.

Some unexplained gap, however, remained for new and renewed lines of credit. "One possible explanation for these differences is that financial institutions discriminate in lending to small businesses," they write.

A case study of Milwaukee shows that small-business lending is concentrated primarily in upper-income and white neighborhoods.

Gregory D. Squires and Sally O'Connor of the University of Wisconsin- Milwaukee find that banks made an average of 37 small-business loans per 100 businesses in upper-income areas and only 20 loans per 100 businesses in lower- and moderate-income neighborhoods.

For communities where the percentage of black residents exceeds 70%, banks made an average of two small-business loans per 1,000 residents. In areas where blacks are less than 10% of the population, banks made 13 small-business loans per 1,000 residents, they write.

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