Is Lending Distance Really Changing? Distance Dynamics and Loan Composition in Small Business Lending

48 Pages Posted: 12 Jun 2020 Last revised: 23 Sep 2021

See all articles by Robert M. Adams

Robert M. Adams

Board of Governors of the Federal Reserve System

Kenneth P. Brevoort

Board of Governors of the Federal Reserve System

John C. Driscoll

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: September 23, 2021

Abstract

Has information technology improved small businesses' credit access by hardening the information used in loan underwriting and reducing the importance of lender proximity? Previous research, pointing to increasing average lending distances, suggests that it has. Using over 20 years of Community Reinvestment Act data, we find that while average distances have increased substantially, distances at individual banks remain unchanged on a loan-weighted basis. Instead, average distance has increased mostly because a small group of lenders specializing in high-volume, small-loan lending nationwide have increased their share of small business lending by 10 percentage points. Our findings imply that small businesses continue to depend on local banks.

Keywords: Banking, small business lending, soft information, lending distance

JEL Classification: R21, G21, G38, L25

Suggested Citation

Adams, Robert M. and Brevoort, Kenneth and Driscoll, John C., Is Lending Distance Really Changing? Distance Dynamics and Loan Composition in Small Business Lending (September 23, 2021). Available at SSRN: https://ssrn.com/abstract=3604308 or http://dx.doi.org/10.2139/ssrn.3604308

Robert M. Adams

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2653 (Phone)

Kenneth Brevoort

Board of Governors of the Federal Reserve System ( email )

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

John C. Driscoll (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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

HOME PAGE: http://www.federalreserve.gov/econresdata/john-c-driscoll.htm

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