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Peer-to-Peer Lending to Small Businesses
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Peer-to-Peer Lending to Small Businesses

Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs

Traci L. Mach, Courtney M. Carter and Cailin R. Slattery
Federal Reserve Board, 2014
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Eye Opening

Recommendation

Many small businesses find it difficult to get bank loans, and entrepreneurs and start-ups often don’t qualify for traditional forms of financing. Once the smallest firms exhaust the resources of family and friends, their only recourse may be the local payday lender or loan shark. But the time may be ripe for technology to upend small businesses’ dependence on banks. Peer-to-peer (P2P) loan websites have made inroads into consumer lending, and dedicated business lending sites are starting to debut. getAbstract recommends this first-of-its-kind investigation into small-business P2P lending to entrepreneurs, investors, small-business owners and commercial bankers.

Summary

Crowdfunding – in which individuals contribute toward meeting the financial needs of other individuals or businesses – is not new, but the web has allowed the financial concept to grow significantly. Crowdfunding covers a diversity of funding mechanisms, from soliciting outright donations to arranging peer-to-peer (P2P) lending. In P2P lending, people pool resources to fulfill a borrower’s loan request, offering small businesses a direct alternative to the bank credit that has been their mainstay.

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About the Authors

Traci L. Mach and Courtney M. Carter are Federal Reserve Board economists. Cailin R. Slattery is a PhD candidate in economics at the University of Pennsylvania.

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