Working Paper
Community Banks as Small Business Lenders: The Tough Road Ahead
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 lessen the soundness of these institutions.
Suggested Citation
Ergungor, O. Emre. 2002. “Community Banks as Small Business Lenders: The Tough Road Ahead.” Federal Reserve Bank of Cleveland, Working Paper No. 02-03. https://doi.org/10.26509/frbc-wp-200203
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