Identifying and Lending to High-Potential Entrepreneurs

Previous research has shown that large capital grants to businesses can have large positive impacts on firm growth. While the microcredit literature found that microloans had modest impacts on firm outcomes it’s possible that the loans were too small to significantly impact business performance. We have evidence from an RCT that larger loans directed to high-potential businesses can have large positive impacts on business growth. The data also show that some businesses are better able to utilize the loans to grow. But identifying firms with the high potential for growth is difficult. We’ve collected three types of data: hard data (regular underwriting variables), soft data (subjective assessments by bank staff), and psychometric data and are utilizing machine learning tools to develop models to identify high potential entrepreneurs who can benefit from large bank loans. We are seeking funding to collect follow up data 2-3 years after loan disbursement.
 

Key facts

Stage: Published
Year: 2020
Institution: University of Illinois