Do borrower-lender relationships still matter for small business loans?

The study uses the 1987, 1993, and 2003 Survey of Small Business Finances to analyze the changes in the role of relationships in determining loan contract terms and credit availability for small businesses. The findings strongly suggest that even though the importance of relationship had lessened in small business lending, a high intensity of relationship, such as sustaining substantial checking or savings account balances with the lender, is still relevant and can benefit the borrower. An implication drawn is that relationship lending can still be an important way for smaller banks to maintain their competitiveness with other lenders.