We examine empirically the role of lending relationships in determining the costs and collateral requirements for external funds. The data originate from a recently concluded survey of small and medium-sized German ®rms. In our descriptive analysis, we explore the borrowing patterns and the concentration of borrowing from ®nancial institutions. Using data on L/C interest rates, collateral requirements, and the ®rm's use of fast payment discounts we ®nd that relationship variables may have some bearing on the price of external funds, but much more so on loan collateralization and availability. Firms in ®nancial distress face comparatively high L/C interest rates and reduced credit availability. Ó 1998 Elsevier Science B.V. All rights reserved.JEL classification: G21; D45

No abstract