Personal Guarantees, Loan Pricing, and Lending Structure in Finnish Small Business Loans


  • Janne Peltoniemi,

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    • Janne Peltoniemi is Head of Degree Programme in Business Management and Principal Lecturer at Centria University of Applied Sciences, Kokkola, Finland, and is affiliated as a post-doc researcher at the University of Oulu, Department of Accounting and Finance, Oulu, Finland.
  • Markku Vieru

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    • Markku Vieru is a professor of Accounting at University of Lapland, Finland.

  • The authors wish to thank Professor Hannu Schadéwitz and the two anonymous reviewers for their insightful comments and extensive inputs to this article. This research is a part of FINNON research project financially supported by the Academy of Finland (Decision No. 116740). The bank is gratefully acknowledged for providing access to the confidential data used in this study.

Address correspondence to: Janne Peltoniemi, Department of Technology & Business, Centria University of Applied Sciences, Talonpojankatu 2, FIN-67100 Kokkola, Finland. E-mail:


This study analyzes the role of personal guarantees and collateral in the context of two different lending structures: one transaction and the other relationship based. The Finnish bank data, which were uniquely accessible for the study, enabled an exploration of credit files with specific details of the characteristics of the lending relationship during the period 1995–2001. According to the empirical results, the use of personal guarantees is an indication of transaction-based lending. Personal guarantees seem to increase the loan premium in transaction-based loans more than in relationship-based loans. Close ties between a bank and a firm seem to be a desirable basis for small and medium-sized enterprise bank lending.