THE VALUE OF PERSONAL CREDIT HISTORY IN RISK SCREENING OF ENTREPRENEURS: EVIDENCE FROM MARKETPLACE LENDING

We explore the quality of risk assessment for entrepreneurs/small business borrowers as compared to consumers, when the same information on previous credit history is used for both segments in marketplace lending. By building several cross-sectional logistic regression and machine-learning models and applying them separately to small business loans (SBL) and consumers we can measure models’ predictive accuracy for different segments, and thus, make observations about the value of the information used for screening. We find the differences in profiles between SBL and consumers, hence they should be assessed by separate models. Yet separate SBL models do not perform well when applied to a future time period. We attribute this to the relatively low predictive value of personal credit history for entrepreneurs as compared to the consumers. We advocate the use of additional information for risk assessment of entrepreneurs, in order to improve the quality of credit screening. This should lead to improved access of small business borrowers to credit in situations when they have to compete with consumers for funding.

Stress Tests, Entrepreneurship, and Innovation

This paper shows that post-crisis stress tests have negative effects on entrepreneurship and innovation at young firms. Exploiting unique data on business-related home equity loans in HMDA, I show that stress tested banks strongly cut small business loans secured by home equity, an important source of financing for entrepreneurs. Lower credit supply leads to a relative decline in entrepreneurship in counties with higher exposure to stress tested banks. The decline is stronger in sectors with a higher share of young firms using home equity financing, i.e., in which the reduction in credit hits hardest. More-exposed counties also see a decline in young firms' patent applications as well as labor productivity, reflecting young firms' disproportionate contribution to growth.

The Influence of Financial Performance on People’s Business Credit in Banking Companies for the Period 2010-2019

Bank Rakyat Indonesia, Bank Mandiri, and Bank Negara Indonesia are some of the banking companies that provide small business loans for MSME players with a view to find out the Capital Adequacy Ratio, Non-Performing Loan and Return On Asset in banking companies that distribute people’s Business Loans for the period 2010 - 2019. Researchers used Quantitative research methods with Descriptive and Verification research methods. People’s Business Credit is one of the programs issued by the government to help small communities that have problems with capital. The KUR program is the solution, with a fairly fast, easy process and very little interest. Research result on variables Capital Adequacy Ratio, Non-Performing Loan, and Return On Asset in Banking Companies for the period 2010 - 2019. The results of the study on the Capital Adequacy Ratio variable did not effect on the level of trust and Non-Performing Loan variable there was a negative and significant level on the Business Credit to Banking Companies for the period 2010-2019.

Effect of Corporate Social Responsibility on Pricing of Small Business Loans

This study analyzes corporate social responsibility (CSR) issues in small business finance in Finland, especially within relationship banking. The study combines credit-file data obtained from a large local Finnish bank with a CSR questionnaire conducted with the bank's business loan managers. The credit-file data contain specific details of CSR characteristics, as well as relationship-, collateral-, firm-, and loan-specific characteristics. CSR, typically considered as a non-financial item, contains value-relevant financial information which affects the loan pricing level. The results show that both overinvestment in CSR and the value created by CSR are valid but connected to different CSR characteristics. Overinvestment is associated with the environment and value creation with diversity and employees. The results contribute to the understanding of the characteristics of CSR in the context of small business bank lending, as well as more generally to important implications for small firms, banks, and management practices.

Effect of Corporate Social Responsibility on Pricing of Small Business Loans

This study analyzes corporate social responsibility (CSR) issues in small business finance in Finland, especially within relationship banking. The study combines credit-file data obtained from a large local Finnish bank with a CSR questionnaire conducted with the bank's business loan managers. The credit-file data contain specific details of CSR characteristics, as well as relationship-, collateral-, firm-, and loan-specific characteristics. CSR, typically considered as a non-financial item, contains value-relevant financial information which affects the loan pricing level. The results show that both overinvestment in CSR and the value created by CSR are valid but connected to different CSR characteristics. Overinvestment is associated with the environment and value creation with diversity and employees. The results contribute to the understanding of the characteristics of CSR in the context of small business bank lending, as well as more generally to important implications for small firms, banks, and management practices.

The Spillover Effect of Consolidating Securitization Entities on Small Business Lending

I investigate how the consolidation of securitization entities under SFAS 166 and 167 spills over to banks' supply of small business loans, which are rarely securitized in the United States. This spillover operates through two channels. (1) In the leverage channel, consolidating banks downsize their entire loan portfolios, both small business loans and other loans, in response to increased leverage after consolidation. (2) In the risk management channel, consolidating banks adjust the mix of loans to maintain optimal diversification. The adjustment can increase the supply of small business loans when their performance covaries positively with the performance of other loans. I find that on average, banks that consolidate more securitized assets reduce small business lending; consequently, counties with a greater market share of consolidating banks experience slower growth in small businesses. I also identify a small group of banks with sufficiently large positive performance covariance that increase small business lending.

Past reforms will aid banks amid the COVID-19 crisis

Significance Confidence among policymakers and investors that the US and UK banking systems will be resilient to the severe global recession is not idle optimism from the Fed or the Bank of England (BoE), but well-founded on the implementation of the Basel III reforms. Impacts Credit lines to aid liquidity mean little for retail or small business loans; firms with no credit rating may struggle to access support. A deeper or longer global recession could trouble even previously well-capitalised banks as loan defaults cannot be sustained for months. Banks will need to be resilient to grow again during the recovery as they could face months, or more, of credit losses. If the global recession deepens, more major economies may consider negative interest rates despite fears of the impact on bank profits.