Peer-to-Peer Lending to Small Businesses

28 Pages Posted: 6 Feb 2014

See all articles by Traci Mach

Traci Mach

Board of Governors of the Federal Reserve System

Courtney Carter

Board of Governors of the Federal Reserve System

Cailin Slattery

University of Virginia - Department of Economics

Date Written: January 9, 2014

Abstract

The current paper examines loan-level data from Lending Club to look at peer-to-peer borrowing by small businesses. We begin by looking at characteristics of loan applications that were and were not funded and then take a more in-depth look at funded applications. Summary statistics show an increasing number of small business loan applications over time. Beginning in 2010 — when consistent measures of loan purpose were recorded for all applications — loan applications for small businesses were on average less likely than loans for other purposes to have been funded. However, logistic regression results that control for the quality of the application show that, holding all else constant, applications for a loan for a small business were almost twice as likely to have been funded than loans for other purposes. Focusing on funded applications, we note that funded business loans were slightly larger on average than loans funded for other purposes but paid similar interest rate s. However, relative to small business loans from traditional sources, peer-to-peer small business borrowers paid an interest rate that was about two times higher. Regression results that control for application quality show that peer-to-peer loans for small businesses were charged almost a percentage point interest rate premium over non-business loans. Logistic regression results that look at loan performance indicate that loans for small businesses were much more likely to be delinquent or charged off.

Keywords: Peer-to-peer lending, small business, alternative small business borrowing, lending club

JEL Classification: M2

Suggested Citation

Mach, Traci and Carter, Courtney and Slattery, Cailin, Peer-to-Peer Lending to Small Businesses (January 9, 2014). FEDS Working Paper No. 2014-10. Available at SSRN: https://ssrn.com/abstract=2390886 or http://dx.doi.org/10.2139/ssrn.2390886

Traci Mach (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Courtney Carter

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Cailin Slattery

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

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