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Do borrower-lender relationships still matter for small business loans?

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  • Durguner, Sena

Abstract

The study uses the 1987, 1993, and 2003 Survey of Small Business Finances to analyze the changes in the role of relationships in determining loan contract terms and credit availability for small businesses. The findings strongly suggest that even though the importance of relationship had lessened in small business lending, a high intensity of relationship, such as sustaining substantial checking or savings account balances with the lender, is still relevant and can benefit the borrower. An implication drawn is that relationship lending can still be an important way for smaller banks to maintain their competitiveness with other lenders.

Suggested Citation

  • Durguner, Sena, 2017. "Do borrower-lender relationships still matter for small business loans?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 98-118.
    • Handle: RePEc:eee:intfin:v:50:y:2017:i:c:p:98-118
    DOI: 10.1016/j.intfin.2017.09.007
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    More about this item

    Keywords

    Small business; Loan contract term; Credit availability; Relationship lending; Bank finance; Survey of Small Business Finances data;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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