Debt Maturity and Relationship Lending: An Analysis of European SMEs

This paper examines the association between bank debt maturity and relationship lending using a unique survey sample of 3,366 SMEs from 19 European countries. The knowledge of how the institutional environment shapes relationship lending helps us to understand how current institutional changes, such as Basel II, might affect the SME-bank relationship and hence, SME access to financing. Our results indicate that stronger firmbank relationships lengthen the maturity of bank loans and that this association is country specific. For example, we show that relationship lending increases (decreases) the likelihood of long-term debt for SMEs in countries with less (more) competition in the banking sector. The implication of our results is that new unified rules within the European community may impact SME access to bank debt differently, depending on the country the firm operates in. This is important for SMEs, banks and policy makers.