Fed Report Shows Slightly Eased Lending Standards

August 7, 2013

pic-money-handsOn Monday, Aug. 5, 2013, the U.S. Federal Reserve Bank released its most recent quarterly Survey of Senior Loan Officers which shows that, in general, lending terms had eased and demand for commercial loans had increased. This survey was conducted among senior loan officers from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.

From a macro level, the results are positive, however, as has been the case with many past surveys, there is a clear differentiation between eased standards among larger and smaller firms, with smaller firms rarely seeing the kind of eased standards large firms have. While lending standards for smaller firms (those with annual sales of less than $50 million) remained largely unchanged, 10 percent of loan officer respondents reported eased standards in the last three months. The rate of easing lending standards for larger firm loans (those with annual sales of $50 million or more) was nearly double that at 19.5 percent.

When asked about the size of credit lines for larger firms, 16.9 percent of respondents said they had eased standards, whereas just 10 percent said they had eased the maximum credit line size for small firms.

Regarding demand for loans, 27.8 percent said demand among larger companies was stronger while 12.5 percent said demand had weakened. Among smaller firms, 31.4 percent of respondents said demand was stronger while 7.1 percent said demand had weakened. Unfortunately this exemplifies the financing challenge for small firms: growing demand without a commensurate easing of lending standards and lending availability.

The report underscores NSBA’s lending findings released this week in its 2013 Mid-Year Economic Report, which shows a drop in small businesses ability to garner adequate financing as well as a drop in small firms’ use of large bank loans.  The Fed survey found that at large banks, demand for loans from smaller firms had only increased 22.9 percent while that same demand was stronger among 40 percent of other banks.

Please click here to view the full Federal Reserve report.