Working Paper

Community banks as small business lenders: the tough road ahead

Abstract: 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.

Keywords: Bank loans; Small business;

https://doi.org/10.26509/frbc-wp-200203

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 2002

Number: 0203