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This research aims to investigate the presence of asymmetric information within business lending process—before and after contract—between bank and micro and small enterprises. The two common conditions arise from this case are adverse selection and moral hazard. The data used in this research were come from banks and debtors-entrepreneurs taken by using simple random sampling method in Purbalingga and Banyumas working areas. Adverse selection was detected by setting specific questions to debtors independently to explore the possibility of any mistakes within proposal screening process. Then, moral hazard was analyzed by rating scale method, i.e. measuring the moral hazard level of each debtor. Hereafter, both of them were analyzed to investigate the effect of adverse selection on moral hazard by multiple regression. This research finds that (1) in selection process, there have been adverse selection because of incomplete information hardly obtained by banks, (2) most of debtors have medium-high level of moral hazard, (3) adverse selection has significant effect on moral hazard. From the results, it can be suggest that (1) adverse selection must be minimizing because it is the main source of further problems, (2) debtors- moral hazard can be detected early by assessing their character and capacity when they propose the projects.