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Is lending distance really changing? Distance dynamics and loan composition in small business lending

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  • Adams, Robert M.
  • Brevoort, Kenneth P.
  • Driscoll, John C.

Abstract

The increasing average distance between small businesses and their lenders has been used to argue that technological changes have allowed banks to lend at longer distances. Generally, studies assume that distance changes are uniform across loans and lenders. Our paper shows that, while average distance has increased substantially over the past two decades, banks themselves have not materially increased their lending distances. Instead, longer average distance was caused by a small number of banks that specialize in originating very small loans nationwide quadrupling their share of lending. Outside of these very small loans, small businesses remain dependent on local banks.

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  • Adams, Robert M. & Brevoort, Kenneth P. & Driscoll, John C., 2023. "Is lending distance really changing? Distance dynamics and loan composition in small business lending," Journal of Banking & Finance, Elsevier, vol. 156(C).
    • Handle: RePEc:eee:jbfina:v:156:y:2023:i:c:s0378426623001978
    DOI: 10.1016/j.jbankfin.2023.107006
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    1. Manasa Gopal & Philipp Schnabl, 2022. "The Rise of Finance Companies and FinTech Lenders in Small Business Lending," The Review of Financial Studies, Society for Financial Studies, vol. 35(11), pages 4859-4901.
    2. Prieger, James E., 2023. "Local banking markets and barriers to entrepreneurship in minority and other areas," Journal of Economics and Business, Elsevier, vol. 124(C).

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    More about this item

    Keywords

    Banking; Small business lending; Soft information; Lending distance;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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