This paper studies the asymmetric information in lending relationships between firms and banks. The theoretical model analyses both interest rates and loan sizes provided by banks to firms, subject to a moral hazard problem and monitoring. The results show that banks reduce the loan size and raise the interest rate as the probability of taking risky projects increases; also, higher internal funds and collateral requirements induce banks to reduce the interest rate and to increase the loan size. The paper also evaluates the model forecasts with a panel of Spanish manufacturing firms over the period 1991-1996.