Why Did Small Business FinTech Lending Dry Up During the COVID-19 Crisis?

Abstract

FinTech small business lenders fund loans mostly through credit facilities and securitizations. This business model could make them financially constrained when a shock reduces the value of existing loans. We find evidence supporting this prediction using detailed applicant-level and lender-level data from a platform that intermediates loans between dozens of FinTech lenders and small businesses. Despite the increased demand for credit at the onset of the COVID crisis, the credit supply quickly dwindled, regardless of borrowers' credit quality. Overall, our analysis demonstrates the fragility of the FinTech lending model in the face of a crisis.

Keywords: fintech, small business lending, COVID-19, credit supply

JEL Classification: G11, G21, G33