Skip to:
  1. Main navigation
  2. Main content
  3. Footer
Working Paper

Community Banks as Small Business Lenders: The Tough Road Ahead

Download pdf
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.
05.01.2002ISSN 2573-7953 WP 02-03DOI 10.26509/frbc-wp-200203
Keywords small business lending, relationship lending, community banks
JEL Classification Codes G21, G28, D82

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

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