Document Type
Research Brief
Date
12-1-2025
Keywords
Entrepreneurship; Borrower discouragement; Stereotype threat; Underrepresented minority (URM) entrepreneurs; Access to capital; Equity; Financial inclusion; Policy solutions, briefs
Language
Eng
Disciplines
Finance and Financial Management
Description/Abstract
Entrepreneurship thrives on access to capital, yet many underrepresented racial minority (URM) founders find themselves discouraged from even applying for loans. This is not simply due to past denials or lack of financial literacy, it is a response to the psychological burden of stereotype threat. Our research shows that the fear of confirming negative stereotypes shifts entrepreneurs into a prevention mindset, leading them to avoid opportunities for growth in order to minimize the risk of rejection. This dynamic makes Black entrepreneurs nearly three times more likely, and Latino entrepreneurs five times more likely, to self-select out of the loan application process. These findings reveal that borrower discouragement is not a matter of confidence, but of navigating a racialized environment that imposes invisible but powerful barriers. To unlock the potential of URM-owned businesses, we recommend a dual strategy: equipping entrepreneurs with mindset tools to counteract stereotype threat, and requiring financial institutions and ecosystem builders to redesign systems in ways that foster psychological safety, equity, and trust.
Recommended Citation
Mercado, Mauricio, "The Discouraged Borrower: How Stereotype Threat Blocks Capital Access for URM Entrepreneurs" (2025). The Lender Center for Social Justice. 84.
https://surface.syr.edu/lender/84
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
