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
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: Suggested Citation