Community banks as small business lenders: the tough road ahead

Ozgur Ergungor ()

No 203, Working Paper from Federal Reserve Bank of Cleveland

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 (search for similar items in EconPapers)
Date: 2002
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