The Rise of Finance Companies and FinTech Lenders in Small Business Lending
Review of Financial Studies, Editor's Choice
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.
Presentations (including scheduled and co-author presentations): AFA(2021), Nova SBE FinTech Conference, Swiss Winter Finance Conference on Financial Intermediation, Financial Intermediation Research Society (FIRS), Central Bank Research Association (CEBRA) Annual Meeting, European Finance Association (EFA), University of Missouri, Federal Reserve Board of Governors, Rutgers University, UIUC, UT Dallas, Kellogg School of Management, FDIC/ JFSR Bank Research Conference, Frankfurt School of Finance and Management, Central Bank of Ireland (scheduled), Fintech: Innovation, Inclusion, and Risks Conference 2022 (scheduled), Chicago Booth Symposium on Private Firms (scheduled), Western Finance Association (2022)
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Data/Code: Download here