DP16684 The Real Effects of FinTech Lending on SMEs: Evidence from Loan Applications

Author(s): Afonso Eça, Miguel Ferreira, Melissa Prado, A. Emanuele Rizzo
Publication Date: October 2021
Date Revised: March 2022
Keyword(s): Fintech, Peer-to-Business lending, Small business lending, SMEs
JEL(s): G21, G23, O33
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16684

We examine the effects of FinTech lending on firm policies using proprietary data on loan applications and loans granted from a peer-to-business platform. We find that FinTech serves high quality and creditworthy small businesses who already have access to bank credit. Firms access FinTech to obtain long-term unsecured loans and reduce their exposure to banks with less liquid assets, stable funds, and capital. We find that firms with access to FinTech loans significantly increase investment, employment, and sales growth relative to firms that get their loan application rejected. We identify these effects by exploiting the number of banks in each a municipality as a source of exogenous variation in the probability of obtaining a FinTech loan. Our findings suggest that FinTech allows firms to improve their financial flexibility and reduce bank dependence.