Abstract
The financing of small and medium-sized firms is important for the catching-up of the East German to the West German economy since reunification. We explore whether it is restricted by unfavorable bank loan terms, using bank-survey data on lending decisions to small and medium-sized firms. A comparison of the terms of lending between the former East German and West German states yields a lending gap given by higher loan prices and collateral requirements in East Germany. This gap can be explained by differences in credit risks and lending strategies of banks.
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