Time Is Money: Real Effects of Relationship Lending: Evidence from Community Bank Lending in the Paycheck Protection Program.

52 Pages Posted: 15 Jul 2020 Last revised: 25 Feb 2021

See all articles by Christopher M. James

Christopher M. James

University of Florida - Department of Finance, Insurance and Real Estate

Jing Lu

University of Florida

Yangfan Sun

Georgetown University - Department of Economics

Date Written: February 24, 2021

Abstract

We provide evidence that the focus of community banks on relationship lending to small businesses combined with their relatively simple organizational structure allowed them to respond faster to Paycheck Protection Program (PPP) loan requests than larger banks. Moreover, we find that community banks lent more per dollar of assets than larger banks. We also find more PPP lending per small business in areas in which community banks have higher pre-pandemic market shares. Finally, using community bank pre-pandemic share of deposits/assets as an instrument for the intensity of PPP lending, we find a negative and significant relationship between county level bankruptcy filings and PPP lending per small business. Overall, our findings suggest that community banks remain an important conduit for small business credit particularly during crises when a rapid response is required.

Keywords: Community Bank, Small Business Lending, Paycheck Protection Progam

JEL Classification: G21

Suggested Citation

James, Christopher M. and Lu, Jing and Sun, Yangfan, Time Is Money: Real Effects of Relationship Lending: Evidence from Community Bank Lending in the Paycheck Protection Program. (February 24, 2021). Available at SSRN: https://ssrn.com/abstract=3633339 or http://dx.doi.org/10.2139/ssrn.3633339

Christopher M. James (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-392-3486 (Phone)
352-392-0301 (Fax)

Jing Lu

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Yangfan Sun

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States

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