Consolidation, technology, and the changing structure of banks' small business lending

Abstract

The U.S. banking industry continues to consolidate, with large, complex banking organizations becoming more important. Traditionally, these institutions have not emphasized small business lending. On the other hand, technological advances, particularly credit scoring models, make it easier for banks to extend small business credit. To see what effects these influences might have generated on small business lending, David Ely and Kenneth Robinson explore the small business lending patterns at U.S. banks from 1994 through 1999. They find that larger banks are increasing their market share, most noticeably in the smallest segment of the small business loan market. The authors also present evidence that the size of the average small business loan has declined, especially at larger organizations, and that the gap in lending focus on the smallest small business loans has narrowed between small and large banks. These trends are consistent with increasing use of credit scoring models.Credit ; Credit scoring systems