Small Business Economics

, Volume 34, Issue 4, pp 465–482

Relationship lending and SME financing in the continental European bank-based system

  • Ginés Hernández-Cánovas
  • Pedro Martínez-Solano

DOI: 10.1007/s11187-008-9129-7

Cite this article as:
Hernández-Cánovas, G. & Martínez-Solano, P. Small Bus Econ (2010) 34: 465. doi:10.1007/s11187-008-9129-7


This paper analyzes the relationship between banks and SMEs in the continental European bank-based system. We find that SMEs with longer bank relationships have enhanced access to loans, but at the same time they bear a higher cost for their debt. We also find that firms maintaining two bank relationships get the cheapest debt, which establishes a limit for the degree of concentration of bank relationships. Our results also show that the existence of trust between firm and bank improves access to financing and reduces the borrowing costs, whereas it increases the likelihood that guarantees will have to be provided. As a consequence, it seems that a relationship based on trust is a better strategy to improve SMEs’ access to finance than the establishment of longer or more concentrated relationships.


Relationship lending SME Competition Commitment Asymmetric information Cost of debt Loan availability Trust Guarantees 

JEL Classifications

G21 G24 G32 L26 

Copyright information

© Springer Science+Business Media, LLC. 2008

Authors and Affiliations

  • Ginés Hernández-Cánovas
    • 1
  • Pedro Martínez-Solano
    • 2
  1. 1.Technical University of CartagenaCartagenaSpain
  2. 2.University of MurciaMurciaSpain