This paper measures the importance of bank-firm relationships in obtaining higher credit “limits.” We use data from a relatively unused section of the National Survey of Small Business Finance (NSSBF, 1993) on credit limits, credit sources, and contract terms for firms with lines of credit from multiple banks. This lets us isolate the credit limit that each bank provides the same firm, eliminating the need to control for often immeasurable, unreliable, or firm-specific “soft” information. For a median Line of Credit (LOC) of $250,000, we find that a bank with a five-year information advantage provides a LOC limit that is $20,000 higher. We also find that purchase of loan and non-loan services by firm from the contracting bank affects the credit limit differently. Non-loan services increase the credit limit and loan services decrease the credit limit. Our findings confirm anecdotal claims from the small business community that relationships are vital to secure higher credit limits. We check for the robustness of our results to outliers, sample selection, and stratification across firm organization types.
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Paper provided by EconWPA in its series Finance with number
0209007.
Length: 28 pages Date of creation: 20 Sep 2002 Date of revision: Handle: RePEc:wpa:wuwpfi:0209007
Note: Type of Document - PDF; prepared on Macintosh; to print on PostScript; pages: 28 ; figures: included Contact details of provider: Web page: http://129.3.20.41
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Find related papers by JEL classification: M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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