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The role of relationships in small-business lending

Author

Listed:
  • Ben R. Craig
  • William E. Jackson
  • James B. Thomson

Abstract

In the presence of imperfect information, both large and small banks try to find alternative ways to identify creditworthy borrowers. Lending relationships are one way to go about this. Relationships between banks and small businesses tend to be much closer than those between banks and large businesses. This Commentary explains why lending relationships are valuable to both small businesses and banks, how they reduce information-lending problems, and what other solutions exist to help in the reduction.

Suggested Citation

  • Ben R. Craig & William E. Jackson & James B. Thomson, 2005. "The role of relationships in small-business lending," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
    • Handle: RePEc:fip:fedcec:y:2005:i:oct15
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    File URL: https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/2005/ec-20051015-the-role-of-relationships-in-small-business-lending-pdf.pdf
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    Cited by:

    1. Ben R. Craig & William E. Jackson & James B. Thomson, 2007. "On government intervention in the small-firm credit market and its effect on economic performance," Working Papers (Old Series) 0702, Federal Reserve Bank of Cleveland.
    2. Ben R. Craig & William E. Jackson & James B. Thomson, 2007. "Does government intervention in the small-firm credit market help economic performance?," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Aug.

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