The study on relationship lending and small business financing

Compared with large enterprises, small businesses short starting time and lack of credit history, it is difficult to judge on financial operations and future prospects. Essentially, Relationship lending is a system arrangement on the banking and corporate financial transactions in order to overcome market failures. Through the theoretical framework of Duopoly competition, the paper studys the pricing behavior of lending and banking. The study shows lack of effective financing information forces small businesses to bear the high interest rates even if the existence of the long-term relation­ships with banks, while the paper explains the reasons by theory of small enterprises often borrowing constraints.