This paper examines how credit market competition affects lending relationships. It presents a model showing that in concentrated credit markets, creditors are more likely to finance credit-constrained firms because it is easier for them to internalize the benefits of assisting the firms. The model suggests that in concentrated markets, creditors can smooth interest rates over time, which may explain why they are able to provide more finance. The paper uses data on small businesses to support these implications. It concludes with conjectures on the costs and benefits of liberalizing financial markets and the timing of such reforms. The paper argues that credit market competition imposes constraints on the ability of firms and creditors to intertemporally share surplus. This makes lending relationships less valuable to a firm because it cannot expect to get help when most in need. The argument that relationships and competition are incompatible recurs in other sub-disciplines in economics. For instance, labor economists claim that a firm is more reluctant to invest in training workers in a competitive labor market unless they post a bond, since workers can threaten to quit and demand a competitive salary once they are trained. The paper uses data on small businesses in the United States to examine the effects of credit market competition on lending relationships. It finds that significantly more young firms obtain external financing in concentrated markets than in competitive markets. The paper also finds that the average quality of firms obtaining finance is lower in more concentrated markets. The paper concludes that the availability and price of credit vary across markets as firms age. It suggests that liberalizing financial markets may have costs and benefits, and that the timing of such reforms is important. The paper also notes that the results are robust to various controls, including firm quality, investment opportunities, and cash flow. The paper finds that firms in more concentrated credit markets are less credit constrained.This paper examines how credit market competition affects lending relationships. It presents a model showing that in concentrated credit markets, creditors are more likely to finance credit-constrained firms because it is easier for them to internalize the benefits of assisting the firms. The model suggests that in concentrated markets, creditors can smooth interest rates over time, which may explain why they are able to provide more finance. The paper uses data on small businesses to support these implications. It concludes with conjectures on the costs and benefits of liberalizing financial markets and the timing of such reforms. The paper argues that credit market competition imposes constraints on the ability of firms and creditors to intertemporally share surplus. This makes lending relationships less valuable to a firm because it cannot expect to get help when most in need. The argument that relationships and competition are incompatible recurs in other sub-disciplines in economics. For instance, labor economists claim that a firm is more reluctant to invest in training workers in a competitive labor market unless they post a bond, since workers can threaten to quit and demand a competitive salary once they are trained. The paper uses data on small businesses in the United States to examine the effects of credit market competition on lending relationships. It finds that significantly more young firms obtain external financing in concentrated markets than in competitive markets. The paper also finds that the average quality of firms obtaining finance is lower in more concentrated markets. The paper concludes that the availability and price of credit vary across markets as firms age. It suggests that liberalizing financial markets may have costs and benefits, and that the timing of such reforms is important. The paper also notes that the results are robust to various controls, including firm quality, investment opportunities, and cash flow. The paper finds that firms in more concentrated credit markets are less credit constrained.