COMMERCIAL BANK LENDING PRACTICES AND THE DEVELOPMENT OF BLACK OWNED CONSTRUCTION COMPANIES zy CAREN GROWN zyx U. S. zyxwv Bureau of the Census TIMOTHY BATES* New School for Social Research ABSTRACT zyxwvutsrq Although the construction industry has been a tremendous growth industryfor black entrepreneurs in recent years, black owned construction firms, on average, are less than half as large as those owned by nonminorities. Previous findings suggest that limited access tofinancial capital, particularly bank loans, has restricted the size of black owned businesses. Examination of nationwide random samples of construction companies reveals that black firms are treated differently by commercial banks than nonminority companies that have otherwise identical traits. Undercapitalization, in turn, is shown to increase the likelihood of firm discontinuance. Alleviation of undercapitalizationproblems would promote the development of black owned businesses in the construction industry. INTRODUCTION zyxw Recent Census Bureau figures highlight rapid sales and employment growth in many areas of black enterprise, particularly among large scale firms (U.S. Bureau of the Census, 1990). The construction industry typifies this trend. This progress occurred in the face of commercial bank lending practices that handicapped blacks seeking to create and expand firms in the construction industry. This study compares the financial capital structures of black and nonminonty owned construction companies at the point of business startup. We estimate econometric models explaining the loan amounts received by blacks and nonminorities borrowing from *Direct all correspondence to: Timothy Bates. Urban Policy Analysis Program, Graduate School of Management and Urban Policy, New Schooljor Social Research, 66 F@h Avenue, 8th Floor, New York. NY zyxwvutsrq 10011. zyxwvutsrqp JOURNAL OF URBAN AFFAIRS, Volume 14, Number 1, pages 25-41. Copyright @ 1992 by JAI zyxwvut Press Inc. All rights of reproduction in any form reserved. ISSN: 0735-2166.