The impact of fintech lending on credit access for U.S. small businesses

Giulio Cornelli, Jon Frost, Leonardo Gambacorta and Julapa Jagtiani

Journal of Financial Stability, 2024, vol. 73, issue C

Abstract: Small business lending (SBL) plays an important role in funding productive investment and fostering local economic growth. Recently, nonbank lenders have gained market share in the SBL market in the United States, especially relative to community banks. Among nonbanks, fintech lenders have become particularly active, leveraging alternative data and complex modeling for their own internal credit scoring. We use proprietary loan-level data from two fintech SBL platforms (Funding Circle and LendingClub) to explore the characteristics of loans originated pre-pandemic (20162019). Our results show that these fintech SBL platforms lent relatively more in zip codes with higher unemployment rates and higher business bankruptcy filings. Moreover, fintech platforms’ internal credit scores were able to predict future loan performance more accurately than traditional credit scores, particularly in areas with high unemployment. Using Y-14 M loan-level bank data, we compare fintech SBL with traditional bank business cards in terms of credit access and interest rates. Overall, while not all fintech firms follow the same approach, we find that fintech lenders could help close the credit gap, allowing small businesses that were less likely to receive credit through traditional lenders to access credit and potentially at lower cost.

Keywords: fintech credit; peer-to-peer (P2P) lending; marketplace lending; small business lending (SBL); Funding Circle; LendingClub; alternative data; credit access; credit scoring (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 L21 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: The impact of fintech lending on credit access for U.S. small businesses (2022)
Working Paper: The Impact of Fintech Lending on Credit Access for U.S. Small Businesses (2022)
Working Paper: The Impact of Fintech Lending on Credit Access for U.S. Small Businesses (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:73:y:2024:i:c:s1572308924000755

DOI: 10.1016/j.jfs.2024.101290

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