Does the first loan matter? Effects of the first lender on subsequent loans for MSMEs
Published:
Jul 26, 2025
Volume:
23
Keywords:
Micro, small, and medium-sized enterprises (MSMEs)
Bank relationship
Loan
Credit constraints
Brazil
Abstract
This study investigates the association between the type of financial institution where a Micro, Small, or Medium Enterprise (MSME) obtains its first loan, and the conditions set for subsequent loans. The research utilizes proprietary data from the Credit Information System (SCR) of the Central Bank of Brazil (BCB) to compare loans granted by different types of financial intermediaries, analyzing the loan amount, interest rates, and duration for firms with no prior credit history in the Brazilian Financial System. The results show that obtaining a loan from the same type of financial institution as the first credit contract allows for higher loan amounts, lower interest rates, and longer duration. Additionally, loan conditions improve over time since the first loan, but not in a linear manner.
How to cite
Ana Maria Barbosa Casolaro, Rafael Schiozer, Theo Cotrim Martins. Does the first loan matter? Effects of the first lender on subsequent loans for MSMEs. Brazilian Review of Finance, v. 23, n. 1, 2025. p. e202512. DOI: 10.12660/rbfin.v23n1.2025.93289.
References
Berger, A. N. and Udell, G. F. (1995) 'Relationship lending and lines of credit in small firm finance', The Journal of Business, 68(3), pp. 351-381.
Berger, A. N. and Udell, G. F. (1998) 'The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle', Journal of Banking and Finance, 22(6-8), pp. 613-673.
Boot, A. W. A. (2000) 'Relationship banking: What do we know?', Journal of Financial Intermediation, 9(1), pp. 7-25.
Boot, A. W. A. and Schmeits, A. (1998) 'Challenges to competitive banking: A theoretical perspective', Research in Economics, 52(3), pp. 255-270.
Boot, A. W. A. and Thakor, A. V. (2000) 'Can relationship banking survive competition?', The Journal of Finance, 55(2), pp. 679-713.
Bruhn, M., Hommes, M., Khanna, M., Singh, S., Sorokina, A. and Wimpey, J. S. (2017) MSME finance gap: Assessment of the shortfalls and opportunities in financing micro, small, and medium enterprises in emerging markets. Report 121264, International Finance Corporation.
Cotugno, M., Monferrà, S. and Sampagnaro, G. (2013) 'Relationship lending, hierarchical distance and credit tightening: Evidence from the financial crisis', Journal of Banking and Finance, 37(5), pp. 1372-1385.
Degryse, H. and Van Cayseele, P. (2000) 'Relationship lending within a bank-based system: Evidence from European small business data', Journal of Financial Intermediation, 9(1), pp. 90-109.
Hsueh, S.-C. and Zhang, S. (2024) 'Distance and financial connection: Dynamics in private firms' bank loan availability', Emerging Markets Finance and Trade, 60(9), pp. 2026-2047.
López-Espinosa, G., Mayordomo, S. and Moreno, A. (2017) 'When does relationship lending start to pay?', Journal of Financial Intermediation, 31, pp. 16-29.
Mach, T. L., Carter, C. M. and Slattery, C. M. (2014) Peer-to-peer lending to small businesses. Discussion Paper 2014-10, Board of Governors of the Federal Reserve System (U.S.).
Martins, T. C., Schiozer, R. and Linardi, F. d. M. (2023) 'The information content from lending relationships across the supply chain', Journal of Financial Intermediation, 56, 101057.
Meslier, C., Sauviat, A. and Yuan, D. (2020) 'Comparative advantages of regional versus national banks in alleviating SME's financial constraints', International Review of Financial Analysis, 71, 101471.
Petersen, M. A. and Rajan, R. G. (1994) 'The benefits of lending relationships: Evidence from small business data', The Journal of Finance, 49(1), pp. 3-37.
Ponticelli, J. and Alencar, L. S. (2016) 'Court enforcement, bank loans, and firm investment: Evidence from a bankruptcy reform in Brazil', The Quarterly Journal of Economics, 131(3), pp. 1365-1413.
Rajan, R. G. (1992) 'Insiders and outsiders: The choice between informed and arm's-length debt', The Journal of Finance, 47(4), pp. 1367-1400.
World Bank Group (2019) Small and medium enterprises (SMEs) finance. [Web Page] Available at: [https://www.worldbank.org/en/topic/smefinance](https://www.worldbank.org/en/topic/smefinance) (Accessed: 16 July 2025).