In this note, we analyze data on small business loan originations collected under the Community Reinvestment Act (CRA) to document heterogeneity in the recovery in small business lending since the financial crisis.
Over the course of the COVID-19 pandemic, state and local governments have instituted a wide array of restrictions on activity, easing or tightening these restrictions as concerns about transmission evolved. The particular choices that governments made could have large impacts on both public health and on economic prosperity. In this note, we provide evidence on the correlation between the level of these restrictions and a key component of the vitality of local economies, namely small businesses. We find that, in states with tighter restrictions, a greater proportion of small businesses generally reported levels of significantly curtailed operations than in states with looser restrictions throughout the pandemic, although this relationship weakens by the summer of 2021. In addition, states with tighter restrictions experienced a larger increase in small business loan default rates. At the same time, it appears that the Paycheck Protection Program helped to mitigate effects of government-imposed restrictions on small business health.
In 2005, Prosper launched the first peer-to-peer lending website in the US, allowing for consumers to apply for and receive loans entirely online. To understand the effect of this new credit source, we match application-level data from Prosper to credit bureau data. Post application, borrowers' credit scores increase and their credit card utilization rates fall relative to non-borrowers in the short run. In the longer run, total debt levels for borrowers are higher than those of non-borrowers. Differences in mortgage debt are particularly large and increasing over time. Despite increased debt levels relative to non-borrowers, delinquency rates for borrowers are significantly lower. *We would like to thank seminar participants at the Federal Reserve Board of Governors, and conference participants at the 2018 Consumer Finance Round Robin for insightful comments. All errors are our own. The analysis and conclusions set forth are those of the author and do not indicate concurrence by other members of the staff, by the Board of Governors or by the Federal Reserve Banks. Dore can be reached at 202-452-2887; tim.dore@frb.gov. Mach can be reached at 202-452-3906; traci.l.mach@frb.gov.
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