Working Paper

The value of relationships between small firms and their lenders

Abstract: This paper investigates the impact of the relationship between a small firm and its lender on the interest rate paid by the firm. I examine detailed data on loans made by small business investment companies (SBICs) to small firms between 1986 and 1991, and my estimates imply that, other things equal, the interest rate charged by an SBIC to a new small business customer is between 40 and 50 basis points higher rate that the rate charged to a repeat customer. These results offer solid evidence that relationships between small firms and their lenders can be quite valuable.

Keywords: Small business; Financial institutions;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 1999

Number: WP-99-29