Working Paper: NBER ID: w29205
Authors: Itzhak Bendavid; Mark J. Johnson; Ren M. Stulz
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; financial constraints; loan supply
JEL Codes: G11; G21; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fintech lenders became financially constrained (G21) | decrease in loan supply (E51) |
| economic shock (E32) | fintech lenders became financially constrained (G21) |
| increased risk associated with lending to small businesses (G21) | tighter lending standards (G21) |
| tighter lending standards (G21) | reduced loan offers (G51) |
| financial constraints (H60) | decline in fintech lending (G21) |
| lenders who specialized in riskier loans (G21) | stopped lending (G21) |