Personal Credit, New Firm Formation and Entrepreneurial Firm Growth

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This project examines the relationship between individual personal credit, entrepreneurship and business formation. An important part of innovation policy targets small firms, but little is known about the links between individual finances and firm startups. The contribution of this research is to create a new dataset that combines data on individual credit reports with new firm startups. The research assesses the role of individual credit in influencing new firm start-up and longer term success. Intellectual Merit: The contribution of the research is to advance understanding of the role of credit access and personal credit scores on individual decisions regarding personal and small business finance. This research provides new insights into the importance of personal credit and human capital in understanding: a) individual decisions at the personal level such as delinquency, personal default and bankruptcy b) the formation, success and failure of small businesses that are partially funded by personal finance with personal guarantees, c) the link between human capital accumulation and the availability of credit from banks and other sources, and d) the effect of job churn on individual bankruptcy and new firm formation. This project also deepens understanding about the ways in which an important policy lever, Small Business Administration (SBA) loans, affects the subsequent growth of small entrepreneurial firms.Broader Impact: The results of the research should inform innovation policies regarding access to credit by small firms and new firm formation. The research also creates an important new dataset for many researchers to study the links between access to credit and firm dynamics.