Community Banks as Small Business Lenders: The Tough Road Ahead

FRB of Cleveland Working Paper No. 02-03

37 Pages Posted: 18 Mar 2002

Date Written: March 10, 2003

Abstract

This paper investigates the performance of community banks as small business (relationship) lenders. Theory suggests that competition reduces the benefits of bank-borrower relationships, making small business loans more risky and less profitable. In support of this theory, the evidence indicates that community banks' performance deteriorates with increasing small business lending. Policies that encourage community banks to engage in more aggressive small business lending may deteriorate the soundness of these institutions.

Keywords: small business lending, relationship lending, community banks

JEL Classification: G21, G28

Suggested Citation

Ergungor, Ozgur Emre, Community Banks as Small Business Lenders: The Tough Road Ahead (March 10, 2003). FRB of Cleveland Working Paper No. 02-03. Available at SSRN: https://ssrn.com/abstract=303560 or http://dx.doi.org/10.2139/ssrn.303560

Ozgur Emre Ergungor (Contact Author)

affiliation not provided to SSRN

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