The Benefits of Lending Relationships: Evidence from Small Business Data

Posted: 17 Nov 2009

See all articles by Mitchell A. Petersen

Mitchell A. Petersen

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Date Written: 1994

Abstract

Previous studies on the benefits of firm-creditor relationships have focused on whether close ties between firms and their banks help ensure credit for firms, even during difficult financial times. This study considers the strength of firm-creditor relationships and their effects on both the availability and price of credit. Data were used from the National Survey of Small Business Finance collected in 1988 and 1989 by the U.S. Small Business Administration and the Federal Reserve System on 3,404 firms with fewer that 500 employees. Firm borrowing patterns, including number of lenders utilized, size of loans, and loan rates, were examined. Other lender relationship factors were identified, including use of nonloan services with the lending institutions (such as checking and savings accounts), and length of the relationship. Findings show that close relationships between firms and institutional lenders increase the availability and, to a lesser extent, reduce the price of credit to firms. The importance of relationships with lenders is further demonstrated in that borrowing from multiple lenders increases costs and reduces the availability of financing. (SFL)

Keywords: Debt financing, Access to capital, Institutional alliances, Lending policies, Debt capital, Credit, Banking industry

Suggested Citation

Petersen, Mitchell A. and Rajan, Raghuram G., The Benefits of Lending Relationships: Evidence from Small Business Data (1994). Journal of Finance, Vol. 49, Issue 1, p. 3-37 1994. Available at SSRN: https://ssrn.com/abstract=1505220

Mitchell A. Petersen (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-467-1281 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
847-467-1281 (Phone)
847-491-5719 (Fax)

Raghuram G. Rajan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
2,149
PlumX Metrics