Relationship lending, trust, and SME bank financing in the UK

It is well recognized that relationship banking helps to relieve the credit constraints faced by SMEs to access bank finance. Trust is an important part of relationship banking. However, the term trust is nebulous,and relationship banking means different things to different banksand different borrowers. How trust enablesthe credit market for SMEs through relationship banking is largely unexplored. Using a unique primary dataset of SMEsin the UK, we construct a measure of trust-basedrelationship banking from the perspective of the borrower. We examine the drivers of trust-basedrelationship banking in terms of organizational trust in the relationship manager, defined as the delegation of operational autonomy, along with local market and social capital factors, and the styleof the bank-borrowerrelationship. Along with bank, firm, and market factors, trust-basedrelationship banking helpedto reduce the credit constraints faced by SMEs in the decade following the global financial crisis.