According to Peterson and Rajan

According to Peterson and Rajan

According to Peterson and Rajan (1994) , small firms borrow an important fraction of their obligation from lenders who furnish them data intensive financial services. The relationship between the firm and the distance of establishment appear to have a little impact on the rate. Correspondingly, the rate charge is inconsequentially lower when the lender provides the firm financial services. They found out that company that borrow from various bank are charged a significantly higher rate. The existential outcome suggest that the availability of finance from foundation enlarge as the firm expend more time in a relationship, as it build up ties to a lender by spreading number of financial services it buys from it, and as it concentrate its borrowing with the lender. The visible concentration of borrowing and the acquiring of financial services are probably the most engaging influence of the study. Small firms may intentionally choose to concentrate their borrowing so as to enrich the availability of financing. The policy implication is the best firm to helped if the lender can work constitute their claims to the firms future profit definite ; for instance, regulations forbidden banks from holding equity could be soften so that the bank have an definite lengthy interest in the firms in which they lend.
The researchers agree that ties between the lenders and borrowers is important. Close ties and interaction may give lender with sufficient information. A significant dimension is its duration. The longer a borrower has been servicing its loan the more its owners gain trust . The relation of this source to our study is it deals with our phenomenon which is money lending. It talks about the relationship of both parties and how they create trust. They explain money lending in banks, institutions and even small businesses which gives knowledge to the researchers.


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