Bank for International Settlements Releases Fed Study Findings on the Impact of Fintech Lending on Credit Access for U.S. Small Businesses

Research finds that fintech small business platforms have the potential to create a more inclusive financial system

DENVER – October 3, 2022 – The Bank for International Settlements (BIS) and the Federal Reserve Bank of Philadelphia recently released research that analyzed proprietary loan-level data from Funding Circle, the leading online platform for small business loans, and other small business fintech data. The data showed that fintech small business lending (SBL) platforms employ alternative data to improve credit scoring and increase access to capital at a lower cost for borrowers who are less likely to receive credit from traditional banks.

The study found that, when compared to traditional banks, fintech SBL platforms lent more frequently in zip codes with higher unemployment rates and higher business bankruptcy filings. Utilizing internal credit scores also allowed Funding Circle to lend to many business owners that would not have had access to bank loans due to their FICO score, improving small business owners’ access to capital and offering greater financial inclusion.

During the pandemic, banks prioritized processing existing business customers’ PPP loan applications, leaving smaller businesses at risk of bankruptcy. Fintech SBL platforms stepped up to fill this credit gap by following a peer-to-peer lending strategy and by partnering with community banks to reach new customers. Those partnerships allowed smaller banks to come together to originate a larger share of PPP loans, expediting loans to small businesses that did not have existing relationships with banks at the onset of the pandemic.

“Small businesses continue to face post-Covid challenges, economic uncertainty and inadequate access to credit,” said Angus Sanders, Chief Revenue Officer and Vice President of Product at Funding Circle US. “The results of this study reinforce how critical fintech small business lending platforms are to the current and future health of our country’s small businesses. Funding Circle is proud to support and expand access to capital to small businesses across the country.” 

Results from the study also found that internal credit scores used by fintech SBL platforms, and more specifically the risk ratings assigned to loans by Funding Circle, were able to predict future loan performance more accurately than the conventional method to credit scoring, leading to better loan performance. Additionally, the study results confirmed that the information used by Funding Circle to risk rank loans is superior to that of risk measures from FICO or VantageScore. 

In aggregate, the findings from this study emphasize the integral role that fintech SBL platforms play in supporting small businesses and creating a more inclusive financial environment. Today, the role of fintech SBL lenders is more important than ever as small businesses seek support in navigating inflation, rising interest rates and volatile markets.

As the report notes, “we have demonstrated the potential of what the fintech platforms and their use of alternative data could do to move us toward a more inclusive financial system. As collaboration and partnerships grow among traditional banks and fintech firms, they would become more efficient in utilizing borrowers’ data using today’s technology and likely to work together in enhancing financial inclusion and the overall economic performance.”

For more information, and to learn more about Funding Circle’s solutions, visit www.fundingcircle.com/us.

About Funding Circle

Funding Circle (LSE: FCH) is the leading online small and medium business (“SMB”) loans platform. Since launching in 2010, investors and lenders including banks, community development financial institutions, specialty finance companies, asset management companies, insurance companies, government-backed entities, and funds – have invested approximately $19 billion to over c.130,000 businesses globally.

For all media inquiries, please contact:

Julia Jaramillopr@fundingcircle.com

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