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

Fisher College of Business Working Paper No. 2021-03-014

Charles A. Dice Working Paper No. 2021-14

60 Pages Posted: 25 Aug 2021 Last revised: 30 Nov 2022

See all articles by Itzhak Ben-David

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Mark J. Johnson

Brigham Young University - Department of Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: November 22, 2022

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

Suggested Citation

Ben-David, Itzhak and Johnson, Mark J. and Stulz, Rene M., Why Did Small Business FinTech Lending Dry Up During the COVID-19 Crisis? (November 22, 2022). Fisher College of Business Working Paper No. 2021-03-014, Charles A. Dice Working Paper No. 2021-14, Available at SSRN: https://ssrn.com/abstract=3910549 or http://dx.doi.org/10.2139/ssrn.3910549

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://https://u.osu.edu/ben-david.1/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Mark J. Johnson

Brigham Young University - Department of Finance ( email )

Provo, UT 84602
United States

HOME PAGE: http://sites.google.com/view/markjohnson/home

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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