THE BENEFITS OF LENDING RELATIONSHIPS - EVIDENCE FROM SMALL BUSINESS DATA

This paper empirically examines how ties between a firm and its credit ors affect the availability and cost of funds to the firm. We analyze data collected in a survey of small firms by the Small Business Admini stration. The primary benefit of building close ties with an instituti onal creditor is that the availability of financing increases. We find smaller effects on the price of credit. Attempts to widen the circle of relationships by borrowing from multiple lenders increases the pric e and reduces the availability of credit. In sum, relationships are va luable and appear to operate more through quantities rather than price s.