Trust-based banking and SMEs’ access to credit

Access to credit is crucial for SMEs’ survival. However, due to the opaqueness of publicly available information on SMEs, banks face information asymmetry that can cause them to ration credit. In this case, trust has been shown to facilitate credit access by bridging the information gap. We contribute to the literature on trust-based banking by using new data to add robustness to extant results, and by discussing two important and still overlooked venues requiring further research. Using two waves of original survey data on 160 Finnish SMEs, our results support findings from prior studies by showing a robust positive relationship between trust and credit access (measured one year apart). We also find support for the hitherto assumed but not explicitly tested substitutability of trust and formal information: trust matters but only when formal information for assessing the SME’s creditworthiness is insufficient. We then identify a future research agenda by highlighting that we do not yet know how banks use qualitative factors such as trust to make lending decisions, nor whether the common implicit assumption of symmetric trust between borrower and lender is realistic. Finally, we discuss how these overlooked areas of research have important theoretical and practical applications.