By Karoliina Liimatainen on Thursday 31 May 2018
Five leading online lenders provided nearly $10bn in funding in 2015–2017 to small businesses. The economic benefits spread far beyond the borrower, a new study shows.
Online lending for small businesses has become an important way to boost the economy in the US, says a report by research company NDP Analytica.
Between 2015 and 2017, five leading online lenders funded nearly $10bn worth of loans to small businesses ranging from local restaurants and home builders to small manufacturers and doctors. The dataset included loans provided by Kabbage, OnDeck and Lendio and two other lending companies that preferred to remain anonymous.
The loans helped small businesses to expand their operations. The loans by these five companies alone generated $37.7 billion in gross output and created 358,911 jobs in the communities around the US.
NDP Analytica’s research showed that, on average, for every dollar lent to small businesses, sales of small business borrowers increased by $2.31, creating $3.79 in gross output in local communities across the country.
“The economic benefits of online lending are far-reaching and extend beyond the funding used by small businesses to maintain or expand their operations,” said Nam Pham, the author of the report and a managing partner at NDP, in a press release.
“As these businesses succeed, so do the communities around them. Small businesses are increasingly turning to online lenders to help cover inventory, payroll for employees, and other expenses at critical junctures in their growth. The loan impacts not just the borrower, but those who work and engage with that business,” he added.
The study also found that nearly one-third of online small business borrowers operate in lower-income communities, and many of them are microbusinesses with less than $100,000 in annual sales. Without online lending platforms, microbusinesses might struggle to find any funding.
NDP’s study, titled The Economic Benefits of Online Lending to Small Businesses and the U.S. Economy, was sponsored by lobby groups Electronic Transactions Association (ETA), Innovative Lending Platform Association (ILPA) and Small Business Finance Association (SBFA).
Jason Oxman, the CEO of ETA, said that online lending complements traditional funding sources instead of trying to replace them.
“Advanced technology enables online small business lenders to gather information and assess credit risks quickly to provide critical funding for small businesses,” he said.