Journal of Financial and Quantitative Analysis

Research Article

Cookie Cutter vs. Character: The Micro Structure of Small Business Lending by Large and Small Banks

Rebel A. Colea1, Lawrence G. Goldberga2 and Lawrence J. Whitea3

a1, Department of Finance, DePaul University, 1 East Jackson Boulevard, Chicago, IL 60604;

a2, Department of Finance, University of Miami, P.O. Box 248094, Coral Gables FL 33124;

a3, Stern School of Business, New York University, 44 West 4th Street, New York, NY 10012.


The informational opacity of small businesses makes them an interesting area for the study of banks' lending practices and procedures. We use data from a survey of small businesses to analyze the micro level differences in the loan approval processes of large and small banks. We provide evidence that large banks ($1 billion or more in assets) employ standard criteria obtained from financial statements in the loan decision process, whereas small banks rely to a greater extent on information about the character of the borrower. These cookie-cutter and character approaches are compatible with the incentives and environments facing large and small banks.