Neither true-friend nor fairweather friend : relationship banking and SME borrowing under Covid-19

A growing literature addresses the costs and benefits associated with relationship banking, particularly for smaller firms, but with much of this work focused on normal trading conditions. Covid-19 provides an ideal testbed to explore the resilience of relationship banking. We examine whether the presence of closer pre-Covid ties between SMEs and their banks helps in accessing funds in the Covid-19 pandemic period. Then are ties between relationship bankers and SME borrowers a case of ‘true love’ or rather are the parties more akin to ‘fair-weather friends’? Data from the UK SME Finance Monitorfrom 2018Q2-2020Q3is used to examine thisquestion. Our analysis suggeststhat relationship banking was important for the acquisition of bank credit pre-Covid-19 but was oflimited influence in post-Covid-19 lending behaviour. Banks treated SMEs that had a good relationship with them in the same way as those that did not and with public interventions to support lenders material in this.