Are all lenders equal? a comparison between peer-to-peer lending and traditional banks concerning small business loans

Abstract

Research on geographical expansion of peer-to-peer lending platforms has different conclusions concerning whether peer-to-peer lending platforms and traditional banks are substitutes or complements. This study aims at exploring factors that affect the expansion of peer-to-peer lending platform with respect to small business loans and finding out whether peer-to-peer lending platforms are substitutes or complements to banks concerned with small business loans. LendingClub is taken as the representative of peer-to-peer lending platforms as it is the largest one in the United States. I draw heat maps based on the normalized share of LendingClub to the total small business loan market. Multiple regression and quantile regression are used to fit the regression models. The study shows that LendingClub tend to have higher market share in areas where there are more small business credit demands. Secondly, LendingClub has more market share in areas where the male ratio is higher, and local economies are not well developed, as the high unemployment rate and low income can significantly increase the market share of LendingClub. Thirdly, bank and LendingClub may be substitutes to each other in terms of small business loans as the change of bank branch is insignificantly negatively related to the market share of LendingClub in the main analysis and has a significantly negative influence on the market share of LendingClub in state-level robustness test.