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Click, Submit 2.0: An Update on Online Lender Applicants from the Small Business Credit Survey

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This study presents an analysis of data from the 2018 Small Business Credit Survey. The findings shed light on the types of small firms using online lenders, their application experiences, and credit outcomes. Among the main findings: Firms that apply at online lenders are more likely to be smaller, have lower credit scores, report more financial challenges, and be less profitable than firms that apply at only traditional lenders. In addition, black-owned and Hispanic-owned firms are more likely than white-owned and Asian-owned firms to report they applied at an online lender. Furthermore, online-lender applicants are more likely than traditional-lender applicants to apply for smaller amounts of financing and to seek funding to cover operating expenses. Finally, online-lender applicants reported greater success obtaining credit than traditional-lender-only applicants, despite having lower credit scores, and they are less satisfied with their lenders.

About Online Lenders

Nonbank online lenders are a growing source of small-dollar credit for small businesses. These lenders, also referred to as “fintech” lenders, utilize data-driven processes and technology for underwriting, pricing, servicing, and delivering funds to borrowers. They offer various small-dollar credit products to their small-business customers such as short- and fixed-term loans, lines of credit, and merchant cash advances. While they represent a small share of total small-business lending, these fintech lenders are a growing source of financing for small firms. The Federal Reserve Small Business Credit Survey indicates that the share of applicants that sought funding at an online lender increased from 19 percent in 2016 to 24 percent in 2017 and to 32 percent in 2018.

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