Seizing Opportunities: Small Businesses, Social Capital, and Banks

Abstract

Why do small businesses exploit business opportunities better in some areas than others?In a sample of 1.2 million consumer-facing establishments, social capital predicts the take-up of risk-free loans controlling for nearby bank branches, income, and education. One standard deviation in the social capital metric accounts for 20 percent of the variation in take-up rates across zip codes, surpassing the impact of a bank branch within 1000 yards. Strong social capital benefits larger, low-growth stores in less-dynamic areas, whereas bank branches help smaller, fast-growing stores in more dynamic areas. Virtual connections have the greatest effect in already advantaged locations.

Keywords

Tags of Social Finance