Bank Size And Small Business Finance: Tests Of The Current Paradigm

Under the current paradigm in small business lending research, small banks have comparative advantages in lending to the smallest, least informationally transparent firms using lending technologies based primarily on "Soft" qualitative information, while large banks tend to specialize in lending to larger firms using technologies based more on "Hard" quantitative information. The authors test this paradigm using data on U.S. small businesses, the banks that lend to these firms, the contract characteristics of their loans, and other information. To conduct the tests, their analysis begins with the identification of 10 distinct lending technologies used by the banks to make small business loans.