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

86 Pages Posted: 8 Jun 2020 Last revised: 1 Sep 2021

See all articles by Manasa Gopal

Manasa Gopal

Georgia Institute of Technology - Scheller College of Business

Philipp Schnabl

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: May 13, 2020

Abstract

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 type of collateral. Consistent with the substitution of bank lending with finance company and FinTech lending, we find that reduced bank lending had no effect on employment, wages, new business creation, or 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.

Keywords: banks, finance companies, small business lending, financial crises

JEL Classification: G21, G23, G01

Suggested Citation

Gopal, Manasa and Schnabl, Philipp, The Rise of Finance Companies and FinTech Lenders in Small Business Lending (May 13, 2020). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3600068 or http://dx.doi.org/10.2139/ssrn.3600068

Manasa Gopal

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://https://manasagopal.com/

Philipp Schnabl (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://pages.stern.nyu.edu/~sternfin/pschnabl/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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