A Federal Reserve bank survey has found that lending standards are showing signs of loosening. It’s getting easier to get a new credit card for the first time in three years. Smaller businesses are seeing more liberal lending standards at banks for the first time in four years. As the United States economy wobbles in its recovery from a severe recession, tight small company credit has been a major setback. But some analysts say that until small business loan demand returns, comforting lending standards could have little or no effect.
Lending standards for revolving credit ease
The Federal Reserve bank survey questions bankers about the status of supply and demand for commercial and consumer credit in the preceding quarter. In a report on the Fed survey, Creditcards.com said credit card lending standards for approving applications had been loosened about 8 percent of banks. Of all the banks surveyed, none had tightened credit card lending standards any further. Data from the survey indicates that 11 quarters of steadily tightening credit may start trending the other direction. Conversely, most existing cardholders nevertheless face limited and costly credit, as outlined by the survey.
Small business credit vs. demand
The new Fed survey marked the first indication since shortly before the recession that small company credit was beginning to ease. NPR’s Fed survey report said that loosening lending standards have emerged for the first time since late in 2006. The Fed held a conference on the lack of small business credit last month. Federal Reserve Chairman Ben Bernanke noted a serious gap between large corporations building up money and reporting strong earnings and thousands of small businesses struggling to get credit. Yet the banks surveyed said a lack of demand for small business loans was the primary problem.
Smaller businesses lack confidence
It’s been documented that small company owners have complained about the lack of credit since the recession hit. But now with credit standards thawing, Seeking Alpha reports that if small business outlook matters, commercial loan demand will continue to be weak. Data from the NIFB Small business Economic Trends Report shows small businesses owners are less optimistic than nearly any point in the past five years. Just 6 percent are motivated to expand at the present time. Only 19 percent plan for making a capital purchase in the next one to two quarters. Expectations for expansion of inventory, job creation and sales continue at low levels.
Additional reading
CreditCards
creditcards.com
NPR
npr.org
Seeking Alpha
seekingalpha.com
