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. For the very first time in four years, banks have loosened lending standards for small businesses. As the U.S. economy wobbles in its recovery from a severe recession, tight small business credit has been a major setback. However, until demand for small business loans resumes, some experts say that more liberal lending standards will do little to ease the pain.
Lending standards for credit cards relax
Each three months, the Federal Reserve bank survey asks banking executives about changes within the supply and demand for loans to companies and households over the previous 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. The numbers put an end, temporarily at least, an 11-quarter run of credit tightening that dates back to 2007. At the exact same time, the Fed survey shows that credit remains limited and costly for most existing cardholders.
Increasing demand a daunting task
The Fed’s latest band survey discovered that small business lending standards may be loosening for the very first time since just before the recession hit. NPR reports that the Fed said it was the first time it had found relaxed lending standards for small business since late 2006. Shortly before the survey was released the Fed conducted a conference with banks on how to stimulate small company lending. Federal Reserve Chairman Ben Bernanke noted a serious gap between large corporations building up cash and reporting strong earnings and thousands of smaller businesses struggling to get credit. Even so, demand for small company loans remains weak, according to the banks surveyed.
Small company outlook remains dim
There are numerous stories about a lack of small business credit during the recession and its aftermath. Yet according to Seeking Alpha, demand will continue to be weak because of a negative outlook for small business owners. Small company owners are more pessimistic about the economy now than at any time since 2005, according to the NIFB Small company Economic Trends report. A mere 6 percent believe now is the time to resume expanding. Within the next two quarters, just 19 percent are planning for making a capital purchase. Expectations for expansion of inventory, job creation and sales continue at low levels.
Further reading
CreditCards
creditcards.com
NPR
npr.org
Seeking Alpha
seekingalpha.com
