Financial performance of small business loans: Indirect evidence

Vol: 
28/2008
Author name: 
Shaffer S
Year: 
2008
Month: 
August
Abstract: 

Using nationwide U.S. bank-level data from 2003-2007, this paper explores multiple dimensions of the financial performance of small business loans by means of statistical decompositions. I find systematic contrasts across small commercial loans of different sizes, which suggest dynamic changes for growing business borrowers as well as diverse challenges and opportunities for banks. The findings overall suggest that small business lending is neither riskier nor less profitable than larger commercial loans, with higher yields offsetting higher marginal costs, and better portfolio diversification offsetting higher chargeoff rates on the smallest commercial loans.

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