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
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. No banks said their credit card lending standards had tightened 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, according to the survey.
Demand for small business credit
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 very first time since late in 2006. The survey was released shortly after a Fed conference on the small business lending problem in mid-July. Fed chairman Ben Bernanke addressed a vexing disconnect between major corporations sitting on huge money reserves and smaller businesses scrambling for loans. Yet the banks surveyed said a lack of demand for small company loans was the primary problem.
Small business owners remain cautious
There have been many stories about a lack of small company credit during the recession and its aftermath. Nevertheless, Seeking Alpha reports that despite the fact that small company lending standards easing, the negative outlook of small business owners remains a drag on demand for commercial loans. Small company owners are more pessimistic about the economy now than at any time since 2005, as outlined by the NIFB Small company Economic Trends report. A mere 6 percent believe now is the time to resume expanding. In the next two quarters, just 19 percent are planning to make a capital purchase. 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
