Home » Year » 2010 » Measuring the Likelihood of Small Business Loan Default: Community Development Financial Institutions (CDFIs) and the use of Credit-Scoring to Minimize Default Risk1

Measuring the Likelihood of Small Business Loan Default: Community Development Financial Institutions (CDFIs) and the use of Credit-Scoring to Minimize Default Risk1

By Andrea Coravos

Community development financial institutions (CDFIs) provide financial services to underserved markets and populations. Using small business loan portfolio data from a national CDFI, this paper identifies the specific borrower, lender, and loan characteristics and changes in economic conditions that increase the likelihood of default. These results lay the foundation for an in-house credit-scoring model, which could decrease the CDFI’s underwriting costs while maintaining their social mission. Credit-scoring models help CDFIs quantify their risk, which often allows them to extend more credit in the small business community.*

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Advisor: Charles Becker

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