Lending standards are showing signs of easing as outlined by a Federal Reserve financial institution survey. For the first time in three years, getting a new charge card is easier. Banks are offering more liberal lending standards to smaller businesses than they have in four years. Lack of small business credit has been identified as a major problem as the U.S. economy struggles to recover from a lingering recession. Some experts say despite the good news, loosening lending standards will do little to help until demand for small company credit returns.
Lending standards for credit cards relax
On a quarterly basis, the Federal Reserve bank survey queries financial institution executives about the previous quarter’s availability of credit and subsequent demand. Creditcards.com reports the Fed survey shows about 8 percent of banks said they eased their charge card lending standards for approving applications. None of the banks surveyed said they had further tightened their credit card lending standards. The survey results show that an 11-quarter run of tightening credit dating back to 2007 may finally be over. In the mean time, Fed data also showed that for most existing cardholders, credit remains limited and costly.
Sparking demand for small business loans
The Fed’s latest band survey found that small business lending standards may be loosening for the first time since just before the recession hit. NPR’s Fed survey report said that loosening lending standards have emerged for the first time since late in 2006. Shortly before the survey was released the Fed conducted a conference with banks on how to stimulate small business lending. Fed chairman Ben Bernanke addressed a vexing disconnect between major corporations sitting on huge cash reserves and small businesses scrambling for loans. However, in the survey most banks were nevertheless reporting lackluster small business loan demand.
Small business owners pessimistic
Since the recession hit it’s been noted that numerous small company 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 company outlook matters, commercial loan demand will continue to be weak. Small Businesses owners are less optimistic than nearly any point in the past five years according to data from the NIFB Small business Economic Trends report. Just 6 percent are motivated to expand at the present time. A capital purchase is prepared by only 19 percent for the remainder of the year. Expectations for expansion of inventory, job creation and sales continue at low levels.
CreditCards
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NPR
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Seeking Alpha
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