This paper investigates how an established borrowing relationship affects the costs associated with initial public offerings of equity. Our model illustrates how the existence of a borrowing relationship reduces the ex ante uncertainty about the value of the issuing firm's equity in the secondary market. If underpricing is related to uncertainty, a borrowing relationship can reduce underpricing. Empirically, we find that, other things equal, IPOs of firms with previously established borrowing relationships are underpriced substantially less than other IPOs.