Easing lending standards may be emerging as a measurable trend, as outlined by a Federal Reserve financial institution survey. It’s getting easier to get a new credit card for the first time in 3 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 business credit has been a major setback. Some experts say despite the good news, loosening lending standards will do little to help until demand for small business credit returns.
Lending standards for credit cards relax
On a quarterly basis, the Federal Reserve financial institution survey queries bank executives about the previous quarter’s availability of credit and subsequent demand. Reporting on the Fed survey, Creditcards.com said about 8 percent of banks had relaxed charge card lending standards for application approval. None of the banks surveyed said they had further tightened their credit card lending standards. Data from the survey indicates that 11 quarters of steadily tightening credit may start trending the other direction. Meanwhile, Fed data also showed that for most existing cardholders, credit remains limited and costly.
Increasing demand a daunting task
The new Fed survey marked the first indication since shortly before the recession that small business credit was beginning to ease. NPR reports the Fed said it was the very first time it had found relaxed lending standards for small company since late 2006. Shortly before the survey was released the Fed conducted a conference with banks on how to stimulate small business lending. The conference put the spotlight on the major gap between big corporations piling up cash reserves as smaller businesses failed to qualify for lines of credit. Yet the banks surveyed said a lack of demand for small business loans was the primary problem.
Small business owners remain cautious
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 company 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 within the next one to two quarters. Also persisting at low levels are expectations for expanding inventory, jobs and sales.
Further reading
CreditCards
creditcards.com
NPR
npr.org
Seeking Alpha
seekingalpha.com
