The value to banks of small business lending

Dmytro Holod and Joe Peek

No 13-7, Working Papers from Federal Reserve Bank of Boston

Abstract: By estimating the market premium placed on the small business loan portfolios of banking organizations, this study provides direct evidence on the value to banks arising from relationship lending. Using data from the small business loan survey contained in the June bank call reports, we find that small commercial and industrial loans do, in fact, add value for smaller banking organizations, both in absolute terms and relative to the value contributed by larger commercial and industrial loans. Interestingly, the value-enhancing effect emanates primarily from the smallest loans, those with original values of $100,000 or less. On the other hand, small commercial real estate loans, being transactional rather than relationship in nature, do not contribute additional value to banking organizations relative to larger commercial real estate loans.

Keywords: Bank loans; small business finance (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (2)

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