The U.S. bank branch network has contracted since the 2010s, limiting borrowers' access to credit institutions. This paper analyzes the changes in banks' branch concentration and their effect on borrowers' choices of being self-employed. To evaluate the impact of the bank branch closings, I use a shift-share research design to assess self-employment exits using zip code variation in preexisting bank market shares. I disaggregate the self-employed into two categories: entrepreneurs whose businesses depend on business loans (incorporated self-employed) and other self-employed individuals (unincorporated self-employed). Using a Community Advantage Panel Survey, I find that the proximity of credit market institutions has heterogeneous effects on self-employment exits. While bank branch closures lead to a decline in incorporated businesses, particularly within a five-mile radius, unincorporated businesses appear insignificantly affected.

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How do informal lending institutions affect entrepreneurship? The paper investigates the role of formal and informal credit market institutions in the decision to become an entrepreneur over the life cycle. I developed a dynamic Roy model in which a decision to become an entrepreneur depends on the access to formal and informal credit markets, non-pecuniary benefits of entrepreneurship, career-specific entry costs, prior work experience, education, unobserved abilities, and other labor market opportunities (salaried employment and non-employment). Using detailed Russian panel microdata (the RLMS survey) and estimating a structural model of labor market decisions and borrowing options, I assess the impact of the development of informal and formal credit institutions. The expansion of traditional (formal) credit market institutions positively impacts all workers' categories, reduces the share of entrepreneurs who borrow from informal sources, and incentivizes low-type entrepreneurs to switch to salaried employment. The development of the informal credit market reduces the percentage of high-type entrepreneurs who borrow from formal sources. In the case of default, a higher value of the social network or higher costs of losing social ties demotivate low-type entrepreneurs to borrow from informal sources. I highlight the practical implications of estimates by evaluating policies designed to promote entrepreneurship, such as subsidies and accessibility regulations in credit market institutions.

This study sheds light on how non-traditional lending avenues, specifically peer-to-peer (P2P) lending platforms, influence the financing decisions of small businesses. It introduces a theoretical framework where borrowers weigh the option between opting for a cost-effective traditional bank loan versus an expensive option through crowdlending platforms. The findings suggest that crowdlending platforms become a more appealing choice in the event of credit supply disruptions in traditional banking sectors. Leveraging the phased introduction of mobility restrictions during the COVID-19 pandemic as a case study, our research demonstrates a noticeable pivot of small businesses towards alternative funding sources, such as P2P lending. These findings emphasize the value of offering a variety of financial tools to small businesses so they can weather economic storms.

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