The Rise of Finance Companies and FinTech Lenders in Small Business Lending

Coauthors: Philipp Schnabl


We document that finance companies and FinTech Lenders increased lending to small businesses after the 2008 financial crisis. We show that most of the increase substituted for a reduction in lending by banks. In counties where banks had a larger market share before the crisis, finance companies and FinTech lenders increased their lending more. By 2016, the increase in finance company and FinTech lending almost perfectly offset the decrease in bank lending. We control for firms’ credit demand by examining lending by different lenders to the same firm, by comparing firms within the same narrow industry, and by comparing firms pledging the same collateral. Consistent with the substitution of bank lending with finance company and FinTech lending, we find limited long-term effects on employment, wages, new business creation, and business expansion. Our results show that finance companies and FinTech lenders are major suppliers of credit to small businesses and played an important role in the recovery from the 2008 financial crisis.

How Collateral Affects Small Business Lending: The Role of Lender Specialization (Job Market Paper)


I study the role of collateral on small business credit access in the aftermath of the 2008 financial crisis. I construct a novel, loan-level dataset covering all collateralized small business lending in Texas from 2002-2016 and link it to the U.S. Census of Establishments. Using textual analysis, I quantify whether a lender is specialized in a borrower’s collateral by comparing the collateral pledged by the borrower to the lender’s collateral portfolio. I show that post-2008, lenders reduced credit supply by focusing on borrowers that pledged collateral in which the lender specialized. This result holds when comparing lending to the same borrower from different lenders, and when comparing lending by the same lender to different borrowers. A one standard deviation higher specialization in collateral increases lending to the same firm by 3.7%. Abstracting from general equilibrium effects, if firms switched to lenders with the highest specialization in their collateral, aggregate lending would increase by 14.8%. Furthermore, firms borrowing from lenders with greater specialization in the borrower’s collateral see a larger growth in employment after 2008. I identify the lender’s informational advantage in the posted collateral to be the mechanism driving lender specialization. Finally, I show that firms with collateral more frequently accepted by lenders in the economy find it easier to switch lenders. In sum, my paper shows that borrowing from specialized lenders increases access to credit and employment during a financial crisis.

Awards: Best PhD Student Paper, Young Scholars Finance Consortium

Presentations (including scheduled): University of Rochester (Simon), University of Florida (Warrington), Georgia Institute of Technology (Scheller), University of Houston (Bauer), Southern Methodist University (Cox), Federal Rerserve Bank of New York, Indiana University (Kelley), Federal Reserve Board of Governors, Johns Hopkins University (Carey), Indian School of Business, Showcasing Women in Finance Conference (2020), Texas A&M Young Scholars Finance Consortium (2020)

The Impact of Mark-to-Market Accounting On Credit Supply

Coauthors: German Gutierrez


We document the impact of mark-to-market accounting for originations in the syndicated lending market. Institutions with mark-to-market accounting increase originations to capture fees and make capital gains during booms. When secondary market prices fall sufficiently below par, as observed in the Great Recession and late 2015, new originations as well as existing loans face mark-to-market losses. Banks that syndicate more often with mark-to-market lenders respond by cutting originations and increasing loan spreads even in markets with low dependence on mark-to-market lenders, i.e., there is a spillover across markets. By contrast, banks with limited mark-to-market dependence maintain originations through the cycle. A one standard deviation increase in mark-to-market dependence accompanied by a drop in secondary market price of 10bp reduces aggregate bank originations by an extra 15%. We establish that this relationship is causal and independent of bank health.