Marketplace Lenders Win 20% of Small Business Loan Apps, Fed Says

  • JJ Hornblass
  • March 23, 2016
  • 3
Screenshot percentage marketplace lending 032316

Source: Federal Reserve Bank of Richmond

Marketplace lending has siphoned a notable share of small business lending, new research shows.

According to a little-noticed report from the Federal Reserve Bank of Richmond, fully 20% of all small business loan applications are now being originated by marketplace lenders. And in loans to companies that have less than $100,000 of revenue, so-called micro-firms, marketplace lenders have a 30% share today.

The report, which was released without fanfare earlier this month and is based on data collected last fall, also noted that online lenders approve 71% of credit applicants, a relatively high approval rating.

While applicant volume is increasingly going to online lending, it is online lenders that have the lowest satisfaction levels, according to the report:

While the approval rate was relatively high for applicants (71% were approved for at least some credit), approved firms were not very satisfied with their experience. The satisfaction score was just 15—far below that of small and large banks. Dissatisfied firms reported concerns with high interest rates and unfavorable repayment terms.

Screenshot dissastisfaction marketplace lending 032316

Source: Federal Reserve Bank of Richmond

Despite the inroads made by marketplace lenders, banks, and small banks in particular, continue to maintain their place in small business lending.

Traditional bank lending continues to be the primary source of financing for small businesses. Credit applicants were most successful and most satisfied with their borrowing experience at small banks. Small banks approved at least some of the amount requested for 76% of applicants, while large banks approved 58% of applicants. Further, small banks earned a satisfaction score (the net percent satisfied with their overall experience) of 75 among approved firms compared to a score of 51 for large banks.

Why is that? According to the report, 73% of applicants asked lenders for financing advice. It appears that is a space where small banks still win.

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JJ started the first iteration of Bank Innovation back in 2007, and has been working on it ever since. He also serves as President & Chief Executive Officer of Royal Media, Bank Innovation’s parent. He founded Royal in 1995 and oversees all aspects of the New York-based diversified media company. Prior to forming Royal, JJ was on the editorial staff of American Banker, the daily newspaper, and worked as an editor of a business magazine in Hong Kong. As a reporter and editor, he has won journalism awards from the National Press Foundation, Newsletter & Electronic Publishers Foundation, and the Reader’s Digest Foundation. He has a BS in Economics from Yeshiva University and a Master’s from the Columbia University Graduate School of Journalism. He was also a Fellow at the University of Wisconsin-Madison Graduate School of Banking. He lives in New York City with his wife, two daughters, and son. He counts among his accomplishments one New York City Marathon, two New York City Triathlons and the 2010 Father’s Day 5K, the first race he ever ran with his daughters. He can be reached at or 212-564-8972.

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3 thoughts on “Marketplace Lenders Win 20% of Small Business Loan Apps, Fed Says

  1. Loved this- it really is so true and such a great way for businesses to get the loans they need to stay in business. More and more people are untrusting of big corporate banks, so being able to offer loans, even if you have less than perfect credit, is such an honor. Our small businesses keep this country going, and they need to be able to get the money they need for equipment or whatever to stay in business!

    Glad I read this!

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