Fed survey shows lending standards easing for first time in years

two hands in a tug of war with a credit card

After years of tightening their grip, banks are loosening credit card and small business lending standards. Think Stock photo.

Lending standards are showing signs of easing, according to a Federal Reserve bank survey. It’s getting easier to get a new credit card for the first time in three years. For the first time in four years, banks have loosened lending standards for small businesses. Lack of small business credit has been identified as a major problem as the U.S. economy struggles to recover from a lingering recession. But some analysts say that until small business loan demand returns, relaxing lending standards will have little or no effect.

Credit card lending standards loosen

Every three months, the Federal Reserve bank survey asks banking executives about changes in the supply and demand for loans to businesses and households over the previous quarter. Creditcards.com reports that the Fed survey shows about 8 percent of banks said they eased their credit card lending standards for approving applications. No banks said their credit card lending standards had tightened further. The numbers put an end, temporarily at least, to an 11-quarter run of credit tightening that dates back to 2007. At the same time, the Fed survey shows that credit remains limited and costly for most existing cardholders.

Small business credit vs. demand

The new Fed survey marked the first indication since shortly before the recession that small business credit was beginning to ease. NPR reports that the Fed said it was the first time it had found relaxed lending standards for small business since late 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 cash and reporting strong earnings and thousands of small businesses struggling to get credit. However, in the survey most banks were still reporting lackluster small business loan demand

Small business outlook remains dim

Since the recession hit it has been noted that many small business owners have complained that they were having more trouble borrowing money to stay open. 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 at nearly any point in the past five years. Only 6 percent feel it is a good time to expand. Only 19 percent plan to make a capital purchase in the next one to two quarters. Also, plans to expand inventory, hiring and sales expectations remain at low levels. A net of 5 percent expect lower sales, 3 percent plan to lower inventory and only a net 1 percent expect to increase hiring.

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