Abstract
The paper proposes a framework for modeling the risk-return tradeoff faced by institutions lending to small firms. A loan contract is viewed as a vector of several negotiable attributes including the interest rate to be paid, the term of loan, the size of both the loan and collateral, and the rate at which the loan to be repaid. A model of the loan contracting process is outlined. Then some “stylized” facts about the relation between small businesses and their banks are presented. Empirical models of the loan granting decision and of the determinants of the interest margin paid by small firms is estimated.
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© 1991 Springer Science+Business Media Dordrecht
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Buck, A.J., Friedman, J., Dunkelberg, W.C. (1991). Risk and Return in Small Business Lending: The Case of Commercial Banks. In: Yazdipour, R. (eds) Advances in Small Business Finance. Financial and Monetary Policy Studies, vol 21. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-3462-0_9
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DOI: https://doi.org/10.1007/978-94-011-3462-0_9
Publisher Name: Springer, Dordrecht
Print ISBN: 978-94-010-5532-1
Online ISBN: 978-94-011-3462-0
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