March 2021 issue contents
The Rise of Fintech Lending to Small Businesses: Businesses' Perspectives on Borrowing

Brett Barkley and Mark Schweitzer
Federal Reserve Bank of Cleveland


Online lending through fintech firms is a rapidly expanding segment of the financial market that is receiving much attention from investors and increasing scrutiny from regulators. To assess how fintech firms' entry is altering the choices and outcomes of small businesses that borrow from them, we analyze data from the Federal Reserve's Small Business Credit Survey, a unique data source on the experiences of business owners with new and traditional sources of credit. We find that fintech lenders have substantially expanded the small business finance market by reaching borrowers less likely to be served by traditional lenders and that businesses using online lenders are younger, smaller, and less profitable than the average small or medium-sized enterprise in the United States. After controlling for compositional differences between online and bank borrowers, we find that businesses using fintech lenders generally apply for smaller loan amounts but value the option of fintech loans. Businesses that receive fintech loans expect more revenue and employment growth than those receiving a bank loan; however, they are less satisfied than businesses that borrow from banks but more satisfied than businesses that were denied credit.

JEL Code: G21, G23, G28, C31.

Full article (PDF, 31 pages, 2,422 kb)