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Brigham Young University Journal of Public Law

Abstract

Minority businesses now make up more than a quarter of all U.S. businesses; yet, due to discriminatory lending practices, cultural aversions to debt, and limited access to capital, these businesses continue to have higher failure rates. At the same time, m inority entrepreneurs are more likely to rely on informal lending and less likely to turn to bankruptcy for relief of debt. Doing so slows down failure for minority entrepreneurs — contra Silicon Valley’s new mantra, “fail fast” — and diminishes the minority entrepreneur’s ability to efficiently reallocate resources towards more productive ventures. In this essay, I distinguish the minority entrepreneurial fast failure decision from that of the majority entrepreneur and propose both private orderin g and regulat ory solutions that could help minority entrepreneurs fail faster. I begin by generally modeling the fast failure decision for the majority entrepreneur, highlighting the social costs of failing fast, and describing how formal lending and bankruptcy affect this model. I then explain how this model is distorted for minority entrepreneurs by discriminatory lending practices, cultural aversions to debt, and access to legal counsel. I conclude by suggesting, and critically assessing, proposals that could diminish these distortions, including peer - to - peer (P2P) lending platforms, mandatory educational programs, color - blind and big data loan and credit assessments, and minority loan subsidies

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© 2018 BYU J. Reuben Clark Law School


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