C a s e 2 2 .1 C22-01 Increasingly, more women are becoming owners of small businesses. However,…

C a s e 2 2 .1

C22-01 Increasingly, more women are
becoming owners of small businesses. However, questions concerning how they are
treated by banks and other financial institutions have been raised by women’s
groups. Banks are particularly important to small businesses, since studies
show that bank financing represents about one-quarter of total debt, and that
for medium-sized businesses the proportion rises to approximately one-half. If
women’s requests for loans are rejected more frequently than are men’s
requests, or if women must pay higher interest charges than men do, women have
»

C a s e 2 2 .1

C22-01 Increasingly, more women are
becoming owners of small businesses. However, questions concerning how they are
treated by banks and other financial institutions have been raised by women’s
groups. Banks are particularly important to small businesses, since studies
show that bank financing represents about one-quarter of total debt, and that
for medium-sized businesses the proportion rises to approximately one-half. If
women’s requests for loans are rejected more frequently than are men’s
requests, or if women must pay higher interest charges than men do, women have
cause for complaint. Banks might then be subject to criminal as well as civil
law suits. To examine this issue, a research project was launched. The
researchers surveyed a total of 1165 business owners, of which 115 were women.1
The percentage of women in the sample, 9.9%, compares favourably with other
sources that indicate that women own about 10% of established small businesses.
The survey asked a series of questions of men and women business owners who had
applied for loans during the previous month. It also determined the nature of
the business, its size and its age. Additionally, the owners were asked about
their experiences in dealing with banks. The questions asked in the survey
included the following:

1 What is the gender of the owner?

1 = female

 2 = male

2 Was the loan approved?

0 = no

1 = yes

3 If it was approved, what was the interest
rate? (How much above the prime rate was your rate?)

Of the 115 women who applied for a loan, 14
were turned down. A total of 98 men who applied for a loan were rejected. The
rates above prime for all loans that were granted were recorded. What do these
data disclose about possible gender bias by the banks?

»