Cookie-Cutter Versus Character: The Micro Structure of Small-Business Lending by Large and Small Banks
43 Pages Posted: 2 May 2004 Last revised: 10 Apr 2010
Date Written: June 11, 2003
The informational opacity of small businesses makes them an interesting area for the study of banks' lending practices and procedures. We use data from a survey of small businesses to analyze the micro-level differences in the loan-approval processes of large and small banks. We provide evidence that large banks ($1 billion or more in assets) employ standard criteria obtained from financial statements in the loan decision process, whereas smaller banks rely to a larger extent on information about the character of the borrower. These cookie-cutter and character approaches are compatible with the incentives and environments facing large and small banks.
Keywords: Bank, bank size, credit availability, relationship lending, small business
JEL Classification: G21, G32
Suggested Citation: Suggested Citation