Download Free The Impact Of Fintech Lending On Credit Access For Us Small Businesses Book in PDF and EPUB Free Download. You can read online The Impact Of Fintech Lending On Credit Access For Us Small Businesses and write the review.

Small businesses are the backbone of the U.S. economy. They are the biggest job creators and offer a path to the American Dream. But for many, it is difficult to get the capital they need to operate and succeed. In Fintech, Small Business & the American Dream, former U.S. Small Business Administrator and Senior Fellow at Harvard Business School, Karen G. Mills, focuses on the needs of small businesses for capital and how technology will transform the small business lending market. This is a market that has been plagued by frictions: it is hard for a lender to figure out which small businesses are creditworthy, and borrowers often don't know how much money or what kind of loan they need. Every small business is different; one day the borrower is a dry cleaner and the next a parts supplier, making it difficult for lenders to understand each business's unique circumstances. Today, however, big data and artificial intelligence have the power to illuminate the opaque nature of a small business's finances and make it easier for them access capital to weather bumpy cash flows or to invest in growth opportunities. Beginning in the dark days following the 2008-9 recession and continuing through the crisis of the Covid-19 Pandemic, Mills charts how fintech has changed and will continue to change small business lending. In the new fintech landscape financial products are embedded in applications that small business owners use on daily basis, and data powered algorithms provide automated insights to determine which businesses are creditworthy. Digital challenger banks, big tech and traditional banks and credit card companies are deciding how they want to engage in the new lending ecosystem. Who will be the winners and losers? How should regulators respond? In this pivotal moment, Mills elucidates how financial innovation and wise regulation can restore a path to the American Dream by improving access to small business credit. An ambitious book grappling with the broad significance of small business to the economy, the historical role of credit markets, the dynamics of innovation cycles, and the policy implications for regulation, this second edition of Fintech, Small Business & the American Dream is relevant to bankers, regulators and fintech entrepreneurs and investors; in fact, to anyone who is interested in the future of small business in America.
Small businesses are the backbone of the U.S. economy. They are the biggest job creators and offer a path to the American Dream. But for many, it is difficult to get the capital they need to operate and succeed. In the Great Recession, access to capital for small businesses froze, and in the aftermath, many community banks shuttered their doors and other lenders that had weathered the storm turned to more profitable avenues. For years after the financial crisis, the outlook for many small businesses was bleak. But then a new dawn of financial technology, or “fintech,” emerged. Beginning in 2010, new fintech entrepreneurs recognized the gaps in the small business lending market and revolutionized the customer experience for small business owners. Instead of Xeroxing a pile of paperwork and waiting weeks for an answer, small businesses filled out applications online and heard back within hours, sometimes even minutes. Banks scrambled to catch up. Technology companies like Amazon, PayPal, and Square entered the market, and new possibilities for even more transformative products and services began to appear. In Fintech, Small Business & the American Dream, former U.S. Small Business Administrator and Senior Fellow at Harvard Business School, Karen G. Mills, focuses on the needs of small businesses for capital and how technology will transform the small business lending market. This is a market that has been plagued by frictions: it is hard for a lender to figure out which small businesses are creditworthy, and borrowers often don’t know how much money or what kind of loan they need. New streams of data have the power to illuminate the opaque nature of a small business’s finances, making it easier for them to weather bumpy cash flows and providing more transparency to potential lenders. Mills charts how fintech has changed and will continue to change small business lending, and how financial innovation and wise regulation can restore a path to the American Dream. An ambitious book grappling with the broad significance of small business to the economy, the historical role of credit markets, the dynamics of innovation cycles, and the policy implications for regulation, Fintech, Small Business & the American Dream is relevant to bankers, fintech investors, and regulators; in fact, to anyone who is interested in the future of small business in America.
This dissertation contains three chapters that aim to improve our understanding of the pricing and supply of fintech credit made to small businesses and consumers. In the first chapter, I examine the contribution fintech makes in small business. Fintech promises improvements in access to credit through more efficient search and better pricing. Using novel data from a marketplace platform of 115,000 loan offers from 46 online lenders I show that the primary contribution of fintech is not in precisely measuring and pricing risk, but rather in facilitating search between small firms and preferred-habitat lenders. Loan offers are largely unexplained by firm characteristics and differ substantially even for the same applicant. The dispersion in offers is largely explained by the fact that lenders have preferred habitats—lending to borrowers of certain risk types and charging relatively uniform rates to all applicants. Borrowers match through the platform with lenders that offer the best rates, which leads to an equilibrium where prices appear to be closely tied to the characteristics of the firm. The findings highlight the importance of marketplace platforms that reduce search frictions for firms. In the second chapter, co-authored with Jason Lee and under the supervision of Itzhak Ben-David and Rene Stulz, we study the unsecured personal loan market and ask whether fintech lenders benefit from a lack of bank competition. We make use of banks’ decisions to restrict the supply of unsecured personal loans to prime borrowers (indicated by FICO scores above 660) as an instrument for reduced competition. Using novel data containing loan performance for millions of fintech borrowers, we find that fintech borrowers who fall just below prime (“near-prime” borrowers) face annual interest rates that are 10.1 percentage points (or 66%) higher than prime borrowers without an associated large jump in default rates. This results in high returns to the lenders—loans made to near-prime borrowers earn annual returns that are 6.9 percentage points higher than seemingly identical borrowers who differ only in potential access to bank credit. In the last chapter, co-authored with Professors Itzhak Ben-David and Rene Stulz, we ask why fintech credit to small businesses became so scarce at the beginning of the COVID-19 pandemic. Using daily data from a major small business fintech credit platform that enables us to identify separately the demand and the supply for credit, we document that the number of loan applications increased sharply early in the COVID-19 crisis, but the supply of credit collapsed as lenders dropped from the platform. Compared to March 2019, the probability that an applicant with identical characteristics received an offer is much lower during the last three weeks of March 2020. We show that the evolution of the supply is consistent with the default risk of potential borrowers becoming too high for loans to be profitable and with the disappearance of fintech lenders' funding.
Technology is changing the landscape of the financial sector, increasing access to financial services in profound ways. These changes have been in motion for several years, affecting nearly all countries in the world. During the COVID-19 pandemic, technology has created new opportunities for digital financial services to accelerate and enhance financial inclusion, amid social distancing and containment measures. At the same time, the risks emerging prior to COVID-19, as digital financial services developed, are becoming even more relevant.
This book focuses on various types of crowdfunding and the lessons learned from academic research. Crowdfunding, a new and important source of financing for entrepreneurs, fills a funding gap that was traditionally difficult to close. Chapters from expert contributors define and carefully evaluate the various market segments: donation-based and reward-based crowdfunding, crowdinvesting and crowdlending. They further provide an assessment of startups, market structure, as well as backers and investors for each segment. Attention is given to the theoretical and empirical findings from the recent economics and finance literature. Furthermore, the authors evaluate relevant regulatory efforts in several jurisdictions. This book will appeal to finance, entrepreneurship and legal scholars as well as entrepreneurs and platform operators.
Small businesses were among the hardest hit in the Great Recession, accounting for more than 60 percent of the total jobs lost. The economic crisis was one focused on the banking sector, which is one reason for the disproportionately high impact on America s small businesses, which tend to be heavily credit dependent. While some aspects of the economy have recovered in the years since, small businesses have struggled, primarily due to a lingering credit gap that is the result of banks being less likely to make the smaller dollar loans those less than $250,000 that small firms (more than 70 percent) seek. A rapidly-growing financial technology (fintech) sector has quickly stepped in to fill this gap, and incumbent banks are exploring a variety of partnership strategies with the new entrants. Yet, while the much needed increase in sources for financing has been welcome by small businesses, these innovative fintech lenders have sparked concerns around transparency and the high costs charged to borrowers. These concerns are exacerbated by a “spaghetti soup” of regulators, where no one federal entity has oversight, and protections around small business borrowing slip through the cracks. This paper takes a detailed look at the current state of small business lending, the causes for the persistent low-dollar loan gap, the solutions being driven by innovative fintech lenders, and the key concerns around oversight and regulation. Finally, our objective is to provide regulatory recommendations that will protect small business borrowers, while not dampening the innovation that has proven so promising for filling the gap in small business access to credit.
This note analyzes the economic impact of digital lending to micro and small sized enterprises (MSEs) in China during the coronavirus disease (COVID-19) pandemic. A preliminary analysis of a large pool of MSEs served by a digital bank indicates that digital banks were able to remotely evaluate borrowers and sustain lending during the pandemic, thereby facilitating the business continuity, sales growth, and financial inclusiveness of MSEs. In the global context, a policy framework—leveraging the advantages of digital banks and empowering digital banks, while guarding against possible financial stability risks—would further support small businesses during and after the COVID-19 pandemic.
The 28.7 million small businesses in the United States--99 percent of all American businesses--are the backbone of the American economy. Historically, small businesses relied on community banks for their credit needs. Over the last decade, small businesses increasingly have turned to "fintech" lenders--nonbank lenders that are largely unregulated. Nonbank consumer lending is governed by consumer protection statutes, but nonbank small business lending is outside of any clear regulatory framework that would protect borrowers from potentially predatory practices.I argue for updates to consumer protection statutes so that they afford the same protection to small business borrowers as to consumers for loans below a certain dollar threshold. I then show that state regulation, combined with placing the small business lending market under the jurisdiction of the Consumer Financial Protection Bureau, is the best approach for nonbank fintech entities. Finally, I demonstrated why the proposed 'Special Purpose Bank Charter' as proposed by the Office of the Comptroller of the Currency is an optimal approach to regulating the non-bank small business lending market.
We show that FinTech lending affects credit markets and real economic activity using a unique data set of a Peer-to-Business platform for which we have the universe of loan applications and loans granted. We find that FinTech serves the same segment of high quality and creditworthy small businesses as banks. Firms use FinTech loans to reduce bank dependence, especially from less liquid banks. We find that firms that access FinTech lending increase assets, employment, and sales relative to firms that get their loan application rejected. In addition, we find that firms increase leverage as they substitute long-term bank debt with long-term FinTech debt and short-term bank debt. Our findings suggest that FinTech lending reduces financing constraints and spurs investment and firm growth.