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Small Business Lending: Challenges and Opportunities for Community Banks

Julapa Jagtiani and Catharine Lemieux
Additional contact information
Julapa Jagtiani: Federal Reserve Bank of Philadelphia
Catharine Lemieux: Federal Reserve Bank of Chicago

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: The recent decline in small business lending (SBL) among U.S. community banks has spurred a growing debate about the future role of small banks in providing credit to U.S. small businesses. This paper adds to that discussion in three key ways. First, our research builds on existing evidence that suggests that the decline in SBL by community banks is a trend that began at least a decade before the financial crisis. Larger banks and nonbank institutions have been playing an increasing role in SBL. Second, our work shows that in the years preceding the crisis, small businesses increasingly turned to mortgage credit--most notably, commercial mortgage credit--to fund their operations, exposing them to the property crisis that underpinned the Great Recession. Finally, our work illustrates how community banks face an increasingly dynamic competitive landscape, including the entrance of deep-pocketed alternative nonbank lenders that are using technology to find borrowers and underwrite loans, often using unconventional lending practices. Although these lenders may pose a competitive threat to community banks, we explore emerging examples of partnerships and alliances among community banks and nonbank lenders.

JEL-codes: G21 G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-ent and nep-ure
Date: 2016-03
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:16-02

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