Who Benefited From PPP Loans From Fintech Lenders? -Liberty Street Economics

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Who Benefited From PPP Loans From Fintech Lenders?

in previous postWe discussed inequalities in access to loans under the Payroll Protection Program (PPP), showing that although fintech lenders had a small share of total PPP loans, they provided important support to underserved borrowers. In this post, we ask whether smaller firms have received the requested amount of PPP loan, and whether the loans have been directed to the hardest hit areas and have reduced job losses. Our results show that fintech providers have been a key channel in reaching minority-owned companies, the smallest small businesses, and the borrowers hardest hit by the coronavirus pandemic.




Have smaller firms received and applied PPP loans?

Request for a small loan of $ 25,000 or less in
Federal Reserve Small Business Lending Review–Can indicate a demand for loans from small firms that find such loans more suitable for their business needs. In support of this interpretation, we find that firms with fewer employees, lower annual income, and female owners were more likely to apply for small loans in line with previous research that firms owned by women are on average smaller than firms owned by men. For example, the average amount requested by non-employer firms (with no employees other than the owner) was only $ 12,000. Non-employer firms were also more likely to turn to fintech lenders, perhaps because banks have higher fixed processing costs for small dollar loans than fintech companies. Insofar as PPP Lender Commissions are a percentage of the loan amount (eg 5 percent for loans up to US $ 350,000), banks may have insufficient incentive to provide small PPP loans.

Among the participants in the small business lending study of 1 to 499 employees, the average PPP funds requested by those reaching out to financial technology lenders was $ 32,000, compared with about $ 60,000 for bank applicants (see below). See diagram below). Fintech lenders approved loans with an average size of $ 20,000 (about 63 percent of the requested amount), while banks approved loans with an average size of $ 50,000 (about 83 percent of the requested amount). The lower shares of the requested amounts that have been approved for applicants for financing fintech lenders may reflect the smaller size of such firms and their less familiarity with PPP rules. For example, the smallest enterprises were less knowledgeable about PPP and they are less likely to apply, and if they do, they are more likely to apply later and face longer processing times.


Who Benefited From PPP Loans From Fintech Lenders?

Can small loan amounts indicate credit rationing fintech lenders? This seems unlikely as the applicants requested smaller loans. Historically fintech firms have provided small dollar loans, but at high interest ratesperhaps by encouraging applicants to apply for smaller loans. However, since rates are fixed in PPPthere seems to be no incentive.

The results of the survey are confirmed by data on loans under PPP. The chart below shows that fintech lending focused on small lending, especially loans less than US $ 25,000. The share of fintech lenders in loan volumes during PPP wave 1 (April 3-16, 2020) was about 7 percent and 1 percent for loans less than $ 25,000 and over $ 1 million, respectively, and increased to 29 percent and 4 percent, respectively. during wave 2 (April 27 – August 8, 2020). Small loans to large and small banks were 30 percent and 57 percent, respectively, during wave 1 and 36 percent and 29 percent during wave 2. In other words, the growth in lending to financial technology during wave 2 was mainly due to the smallest loans. … sizes. While all lenders increased their share of small loans from wave 1 to wave 2, the relative increase was greater for fintech lenders than banks. Previous research also noted a swap between fintech lenders and banks, but not what happened for small loans.


Who Benefited From PPP Loans From Fintech Lenders?

Did fintech loans reach problem borrowers?

Some design features of the PPP program and the importance of preexisting banking relationships may have discouraged PPP lenders reaching the hardest hit borrowers pandemic, at least during wave 1, but smaller banks have done well than big banks. Have fintech lenders improved banks in targeted lending to the most needy borrowers?

To answer this question, we regress the lender’s loans in the county as the share of his state loans to the share of the race or ethnic group living in the county and a measure of the characteristics of the county (such as education and income versus state). We found that fintech lenders made more small loans (less than $ 25,000) in counties with a higher proportion of black residents during wave 1. In comparison, small loans made by banks during wave 1 were negatively correlated or not. correlation with the proportion of black residents in the county. These results highlight the over-influence of several fintech lenders who were allowed to make PPP loans during wave 1.

Have financial technology loans been provided to counties with higher COVID death rates? In the regression, we include an additional explanatory variable: the county’s COVID-19 mortality rate on May 4, 2020 (for wave 1) and May 27, 2020 (for wave 2). The dates were chosen based on the fact that the number of deaths from COVID-19 lags behind the incidence. We found that fintech lenders made more small loans (less than $ 25,000) in counties with higher mortality rates. This is illustrated in the scatter chart below, where the difference in mortality rates between the counties with the highest and lowest mortality rates in the state is compared with the difference in the share of fintech lenders in small loans for the same counties. Small lending shares of fintech companies strongly correlate with mortality rates, especially in states with large geographic spread of mortality rates. For example, in New York, the share of small loans from fintech lenders was almost double in counties with the highest mortality rate compared to counties with the lowest mortality rate. In comparison, the shares of bank loans were not statistically correlated with the mortality rate during wave 1. During wave 2, loans from all lenders were similarly correlated with the mortality rate, which corresponds to other studies


Who Benefited From PPP Loans From Fintech Lenders?

Were PPP loans associated with a large number of re-hires?

Firms seeking emergency assistance (PPPs or other government programs such as EIDL) were more affected by the pandemic than those that were not. Half of the firms that filled out applications reduced their workforce, compared with about 27 percent of firms that did not seek emergency assistance. This was especially true for black-owned firms. About two-thirds of black-owned firms that sought emergency help cut their workforce, while less than half of white-owned firms did so.

When applicant firms received PPP loans, they were more likely to re-hire employees. More than three quarters of firms that received PPP funds have taken steps to re-hire employees, compared with just over half of firms that did not apply or receive PPP funds. Black-owned firms that received PPPs were as likely as white-owned firms to try to re-hire their employees. However, among firms that did not receive PPP funds (either because they did not apply or because they applied but were not approved), black-owned firms were less likely than white-owned firms to try again. to hire.

Our results do not confirm that PPP loans led to an increase in re-hiring, as we do not consider the impact of demand on loans. Our data also cannot tell us about the extent of job loss prevention, but previous research has shown that PPPs modest employment effects… However, it may have helped in other ways as well – for example, to allow firms to meet. non-PPP loans other non-wage obligations and improve them chances of survival

Final Words

Although fintech lenders accounted for a small share of total PPP loans, they played an important role in serving minority owners and businesses that needed small loans, but were less likely to receive them from other sources. These smallest of small businesses are critical to supporting dynamic commercial areas and have a higher share of women and minority entrepreneurs… Reflecting this special efforts were made as part of the latest round of PPP funding to make the program more attractive to sole proprietors, independent contractors and self-employed

Chart data

Jessica BattistoJessica Battisto is a Senior Analyst in Outreach at the Federal Reserve Bank of New York.

Nathan GodinNathan Godin is a senior analyst in the Bank’s Research and Statistics Group.

Claire Cramer MillsClaire Cramer Mills is Assistant Vice President and Director of Community Development Analysis for the Bank’s Outreach Group.

Asani SarkarAsani Sarkar is Assistant Vice President in the Research and Statistics Group of the Bank.

How to cite this post:

Jessica Battisto, Nathan Godin, Claire Cramer Mills, and Asani Sarkar, Who Benefited From PPP Loans From Financial Technology Lenders ?, Federal Reserve Bank of New York. Liberty Street Economics, May 27, 2021, https://libertystreeteconomics.newyorkfed.org/2021/05/who-benefited-from-ppp-loans-by-fintech-lenders.html.


Additional posts in this series

COVID-19 and Small Business: Race and Income Unequalities
Who Received PPP Loans From Fintech Lenders?

Related reading

Economic Inequality Series

Press briefing

Who Benefited From PPP Loans From Fintech Lenders?


Denial of responsibility

The views expressed in this post are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System. The authors are responsible for any errors or omissions.

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