Clicking for Credit: Experiences of Online Lender Applicants from the Small Business Credit Survey – Federal Reserve Bank of Cleveland
Community Development Policy Advisor
Ann Marie’s work focuses primarily on small business issues, especially access to credit.
Manager, Policy Analysis, Board of Governors of the Federal Reserve System
Barbara is in the Division of Consumer & Community Affairs of the Federal Reserve Board of Governors in Washington, DC analyzing emerging issues in consumer and small business financial services.
Supervisory Policy Analyst, Board of Governors of the Federal Reserve System
Kim Wilson is a supervisory policy analyst in the Division of Consumer & Community Affairs of the Federal Reserve Board of Governors in Washington DC, where she analyzes issues related to small business lending, auto lending, and financial inclusion.
Lucas Misera is a policy analyst in the Community Development Department at the Federal Reserve Bank of Cleveland. He joined the Bank in June 2020 and conducts research on small-business issues, particularly access to credit.
This report presents findings on the experiences of small businesses seeking credit from online lenders, based on data from the 2021 Small Business Credit Survey (SBCS). According to findings, firms that apply to online lenders are more likely to be newer and have fewer employees, lower revenues, and weaker credit scores. In addition, Black- and Hispanic-owned firms are more likely than white- and Asian-owned firms to report that they applied to an online lender. Furthermore, contrary to prior SBCS findings, online-lender applicants were less likely than bank applicants to be approved for the full amount of financing they sought. Generally, online-lender applicants reported lower overall satisfaction with their lenders than did bank applicants. Overall, approved applicants cited fewer challenges with their lender experiences than did applicants that were denied. The only exception was at online lenders, where approved applicants were more likely than denied applicants to cite challenges with high interest rates and unfavorable repayment terms.
Online lenders, also referred to as fintech lenders, provide a variety of credit products, such as short- and fixed-term loans, lines of credit, and merchant cash advances. They use data-driven processes and technology for underwriting, pricing, servicing, and delivering funds to borrowers. The number of small businesses seeking credit online steadily grew in the years leading up to the pandemic but declined somewhat following the onset of COVID-19 (down to 23 percent of applicants in the 2021 SBCS, from 33 percent of applicants in the 2019 SBCS).
Check here for related Small Business content, including analyses, credit-survey results, commentary, and more.
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