Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure

Berger, Allen N.; Udell, Gregory F.

doi:10.17016/feds.2001.36

Cited by 342 publications

(517 citation statements)

References 74 publications

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“…This change in the relationship between borrowers and lenders has caused concern about small firms' access to capital since small firms are more dependent on financial institutions for external funding (Berger and Udell ; DeYoung, Hunter, and Udell ; Petersen and Rajan ) . Asset‐based lending to small firms, however, is quite expensive for the lender and the borrower, as it requires an intense amount of monitoring by the lender and substantial liquid assets on behalf of the borrower.…”

Section: Relational Versus Transactions Lendingmentioning

confidence: 99%

“…This “embeddedness” also allows the loan officer to take into account the reputation of the person seeking a loan—the person's standing in the community, trustworthiness, and so on. Empirical research has shown the importance of relationship lending for small firms (see Berger and Udell , ). In particular, relational lending is linked to lower interest rates, reduced collateral requirements, and increased credit availability.…”

Section: Relational Versus Transactions Lendingmentioning

confidence: 99%

“…In their analysis of the 1998 Panel Study of Entrepreneurial Dynamics, Campbell and De Nardi () find less than half of those nascent entrepreneurs who applied for bank loans to help finance their ventures were approved for loans. Most entrepreneurs rely on self‐financing and informal credit markets (see also Berger and Udell ). Restructuring in the financial services industry, with increased absentee ownership and diminished importance of relational lending, creates the possibility that small businesses in rural America may face reduced access to credit and higher costs for that which is available.…”

Section: Alternative Financial Servicesmentioning

confidence: 99%

“…We are concerned that restructuring of the financial services sector has altered the nature of the traditional relationship between small business owners and entrepreneurs and financial capital in rural communities. Small town lending has a long history of relational or “soft data” lending, in which concepts such as trust, networks, and community reputation were very important for securing loans and credit lines from local banks (Berger and Udell ). This symbiotic relationship between local banks and local businesses is vital for rural communities to sustain locally oriented capitalism.…”

Section: Introductionmentioning

confidence: 99%

“…Berger and Udell () find that the principal owner of the small firm is the source of 31.33 percent of total equity financing.…”

mentioning

confidence: 99%

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Restructuring of the Financial Industry: The Disappearance of Locally Owned Traditional Financial Services in Rural America

et al. 2014

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Restructuring in the financial services industry has altered the relationship between small business owners and capital. In the past small businesses have relied on relational, or soft data, lending from locally owned banks for capital. The proliferation of absentee-owned local branch networks brought standardized practices, thus eliminating the autonomy of local loan officers to utilize soft data in loan decisions. In this article we examine the changes in the percentage of traditional financial services that are locally owned in three county types: metropolitan, micropolitan, and noncore. We utilize the Longitudinal Business Database at the U.S. Census Bureau Center for Economic Studies. We examine changes in local ownership of traditional financial services between 1976 and 2007. We find that the rate of decline of local ownership has been greatest in the noncore (most rural) counties. We also explore to what extent these patterns are related to the emergence of alternative financial services during the same period. We find that such alternative services are growing in all three county types, but at rates not significantly different than the population growth for these county types. We supplement our analysis with data from qualitative interviews with small business owners throughout rural Texas. We conclude with a discussion of implications and plans for future research.

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Section: Relational Versus Transactions Lendingmentioning

confidence: 99%

Section: Relational Versus Transactions Lendingmentioning

confidence: 99%

Section: Alternative Financial Servicesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

“…Berger and Udell () find that the principal owner of the small firm is the source of 31.33 percent of total equity financing.…”

mentioning

confidence: 99%

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Restructuring of the Financial Industry: The Disappearance of Locally Owned Traditional Financial Services in Rural America

et al. 2014

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Spatial dependence in small cooperative bank risk behavior and its effects on bank competitiveness and SMEs

Algeri

Forgione

Mucciardi

2021

Appl Stoch Models Bus & Ind

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In this article we consider the effects of the inclusion of spatial dependence in the empirical model measuring small cooperative banks' risk performance.In the presence of cross-sectional dependence, spatial analysis deals with co-movement among geographical units, allowing for the evaluation of spillover effects and improving econometric models. The article makes several contributions to the literature. First, we support the hypothesis that the inclusion of spatial terms improves small bank soundness models. Second, with the Z Score used as a proxy for bank soundness, we indirectly test the impacts of relationship lending on small firms, which is a classic tool adopted by small banks to assess the creditworthiness of small firms. Third, since we control for banks' market power, we expand the literature on the relationship between bank risk and market competitive pressure. Finally, we find empirical evidence that bank size does affect the financial standing of small banks.

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Improving Forecast of Binary Rare Events Data: A GAM‐Based Approach

Calabrese

Osmetti

2015

Journal of Forecasting

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This paper develops a method for modelling binary response data in a regression model with highly unbalanced class sizes. When the class sizes are highly unbalanced and the minority class represents a rare event, conventional regression analysis, i.e. logistic regression models, could underestimate the probability of the rare event. To overcome this drawback, we introduce a flexible skewed link function based on the quantile function of the generalized extreme value (GEV) distribution in a generalized additive model (GAM). The proposed model is known as generalized extreme value additive (GEVA) regression model, and a modified version of the local scoring algorithm is suggested to estimate it. We apply the proposed model to a dataset on Italian small and medium enterprises (SMEs) to estimate the default probability of SMEs. Our proposal performs better than the logistic (linear or additive) model in terms of predictive accuracy. Copyright © 2015 John Wiley & Sons, Ltd.

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Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure

Cited by 342 publications

References 74 publications

Restructuring of the Financial Industry: The Disappearance of Locally Owned Traditional Financial Services in Rural America

Restructuring of the Financial Industry: The Disappearance of Locally Owned Traditional Financial Services in Rural America

Spatial dependence in small cooperative bank risk behavior and its effects on bank competitiveness and SMEs

Improving Forecast of Binary Rare Events Data: A GAM‐Based Approach

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