Clicking for Credit: Experiences of Online Lender Applicants from the Small Business Credit Survey
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.
About Online Lenders
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).
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The views expressed in this report are those of the author(s) and are not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System.