Agency relationship problems and lending to small businesses

Small businesses rely heavily on bank loans for their financial need banks encounter risks when considering loans to these businesses.Many of these risks are attributed to the agency problems in their relationships.It is also argued that the agency problems are likely to be most significant when the business small.Sometimes these problems affect the willingness of some bank to Provide funds to the small business sector.This paper highlights the agency between commercial banks and small businesses, the use of several loans features to overcome these problems, and to suggest alternatives to increase the accessibility of bank funding to the small business sector