A new report on small business lending in the United States reveals that some of the nation's largest "FinTech" small business lending platforms funded nearly $10 billion in online loans from 2015 to 2017, generating $37.7 billion in gross output, creating 358,911 jobs and $12.6 billion in wages in U.S. communities. The upsurge in lending from online small business lenders is filling a critical financing gap for small businesses across industries, according to a new study from NDP Analytics, a Washington, D.C.-based economic research firm.

The NDP study, entitled: "The Economic Benefits of Online Lending to Small Businesses and the U.S. Economy," was sponsored by the Electronic Transactions Association, the Innovative Lending Platform Association (ILPA) and the Small Business Finance Association and provides an in-depth look at the economic impact of online small business lending in the United States. According to the study, the dollar amount of loans provided by just five leading online small business lenders increased by 50 percent in three years, from $2.6 billion in 2015 to $3.9 billion in 2017.

The study also found that nearly one-third of online small business borrowers are located in lower-income communities. According to NDP, about 24 percent of these borrowers are microbusinesses with less than $100,000 in annual sales and two-thirds have less than $500,000 in annual sales. About 42 percent of small businesses borrowed between $10,000 and $50,000 from the five online small business lenders with the average amount being $55,498.

Small Businesses Are Vital to Local Economies

According to Nam Pham, Ph.D., report author and Managing Partner at NDP, online lending to small businesses provides substantial economic benefits. The research showed that, on average, for every $1 lent to small businesses, sales of small business borrowers increased by $2.31, creating $3.79 in gross output in local communities across the country.

"The economic benefits of online lending are far reaching and extend beyond the funding used by small businesses to maintain or expand their operations," says Pham. "As these businesses succeed, so do the communities around them. Small businesses are increasingly turning to online lenders to help cover inventory, payroll for employees, and other expenses at critical junctures in their growth. The loan impacts not just the borrower, but those who work and engage with that business."

Online Lending Fills the Financing Gap for Small Businesses

Small businesses, from local restaurants to small manufacturers, home builders and doctors, provide everyday goods and services and employ over half of the private-sector workers in the United States.  Small businesses rely heavily on access to capital, with nearly three-quarters of small business owners seeking small loans to start, operate, or expand their businesses.

"Online lending complements, rather than replaces, traditional funding sources," said Jason Oxman, CEO of ETA. "Advanced technology enables online small business lenders to gather information and assess credit risks quickly to provide critical funding for small businesses. Online small business lenders provide key options and benefits to American small business owners in the highly competitive lending marketplace."

Snapshot of Online Small Business Lending: New York State

In New York State alone, the online small business lenders who participated in the study funded over $758 million to 11,490 New York small businesses from 2015 to 2017. On average, for every $1 in online lending in New York State, sales of small business borrowers increased by $2.38, creating $3.34 in gross output in their local communities.

New York's online small business borrowers are located across the state, covering over half of all zip codes, with about one-third of borrowers from areas below the national median income. Overall, the small business loans provided by online lenders generated $2.5 billion in gross output and created 20,154 jobs with over $795 million in wages in local communities in New York State.

Online Small Business Lending Data

The dataset used for the study included nearly $10 billion in loans provided to 179,505 small business borrowers across the United States from 2015 to 2017 by five major online small business lenders.  The dataset was aggregated with industry-level data to calculate the direct business impact of the loans on sales for the borrowing businesses, then official economic multipliers published by the Bureau of Economic Analysis were applied to calculate the effects of the loans on local economies.