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Economic Commentary

The Role of Relationships in Small-Business Lending

In the presence of imperfect information, both large and small banks try to find alternative ways to identify creditworthy borrowers. Lending relationships are one way to go about this. Relationships between banks and small businesses tend to be much closer than those between banks and large businesses. This Commentary explains why lending relationships are valuable to both small businesses and banks, how they reduce information lending problems, and what other solutions exist to help in the reduction.

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit clevelandfed.org for updates.

Suggested Citation

Craig, Ben R., William E. Jackson III, and James B. Thomson. 2005. “The Role of Relationships in Small-Business Lending” Federal Reserve Bank of Cleveland, Economic Commentary 10/15/2005.