We examine banks’ choice between two costly instruments used to pick loan applicants: direct screening by acquiring borrower-specific information and collateral requirements. We show that with longer relationships the preference for initial screening increases, while total welfare is enhanced as a result of more efficient selection. The model rationalizes established empirical facts about lending relationships (such as reduced incidence of collateral, but not necessarily lower interest rates in later periods for safer borrowers). The results are stronger under bank competition. Our findings suggest that policies supporting loyal lending relationship can increase initial access to credit by reducing dependence on collateral. Joint with Bogdan Stacescuz.