The advent of the Internet has opened many opportunities for bankers to access new customers, increase convenience and expand product ranges in many markets, including that of small businesses. Yet anecdotal evidence reveals that smaller banks are reluctant to employ Internet technology in the small business market for fear of damaging the customer relationship developed through personal contact. These smaller, more simply structured banks tend to specialize in small business lending, possessing a comparative advantage in that market (Craig and Hardee, 2001). This is particularly so in relationship driven credits where personal knowledge of the borrower is paramount over financial ratios produced through credit scoring models (Berger and Udell, 1995, 1994). However, with technological advances, large banks have captured a greater share of the small business loan market (Ely and Robinson, 2001; Mester, 1997). Furthermore, large complex financial institutions have made greater inroads in establishing an Internet presence on the World Wide Web and have the most ambitious online banking agendas (Furst, Lang and Nolle, 2000). Within the financial services industry consolidations are ongoing and information technologies rapidly improve. The result is much larger, complex banks participating more in small business lending (SBL) relative to the fewer small, simply structured ones—in contrast to what older evidence reveals (Ely and Robinson, 2001). Consequently, the purpose of this paper is to determine if, with advanced technologies along with the changing face of the industry, bank structure continues to impact SBL; and if specifically Internet banking “levels the playing field” in that market. We define an Internet bank as any commercial bank maintaining a World Wide Web site on which banking transactions may be conducted electronically. These range from basic Internet services such as account inquiries to total financial management of a customer?s assets.

JEL Codes

G21, M13


Bank, Lending, Debt, Bank Structure, Internet