Previous research has focused on economic factors that influence relationships between entrepreneurs and banks. Trust is relevant because it can reduce agency problems. A conceptual framework is developed from previous literature and from a study of entrepreneurs and bank managers from two regions of Northeast Italy. Testable propositions are derived regarding determinants of trust and the process of development in the entrepreneur–bank relationship. Within close–knit communities, information from third parties and community involvement affect the build up of trust. The implications are that bestowing trust may increase trustworthy behavior leading to a spiral of trust. Heavy monitoring may lead to lower levels of trust in a bank and lower demand for finance and/or less trustworthy behavior.
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