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Non-bank loans to corporate businesses have shown a dramatic increase compared to bank loans. Despite the increasing importance of non-bank lending, the differences between loans made by different types of lenders are mostly unknown. To uncover the distinctions, the author investigates whether bank and non-bank financial institutions deal differently with information scarcity of small firms by introducing lender-borrower distance as a proxy for information availability. Using the National Survey of Small Business Finances (NSSBF) provided by the Federal Reserve Board, the loan approval probability models after controlling for various borrower characteristics are estimated. The NSSBF data is collected by using stratified sampling to ensure sufficient numbers of observations for minority-owned firms. To circumvent potential bias due to the sampling method, the author follows the approach suggested by Wooldridge (1999) and estimates a weighted maximum likelihood estimation to adjust for sampling design. This paper establishes novel evidence supporting the notion that banks and non-bank financial institutions are different in their ability to deal with information scarcity. Bank loan approval probability decreases as distance to their borrowers increases, while its effect on non-bank loan approval probability is statistically insignificant, supporting the notion that non-bank lending is different from bank lending in dealing with information asymmetry. Joong Ho Han (South Korea) BUSINESS PERSPECTIVES LLC “СPС “Business Perspectives” Hryhorii Skovoroda lane, 10, Sumy, 40022, Ukraine www.businessperspectives.org Does Lending by Banks and Non-banks Differ? Evidence from Small Business Financing Received on: 27th of September, 2017 Accepted on: 17th of October, 2017

Does Lending by banks and non-banks differ? Evidence from small business financing