Easing lending standards may be emerging as a measurable trend, according to a Federal Reserve financial institution survey. For the very first time in three years, getting a new charge card is easier. Banks are offering more liberal lending standards to small businesses than they have in four years. Lack of small company 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 business credit returns.
A reversal for credit card lending standards
Every 3 months, the Federal Reserve bank survey asks banking executives about changes within the supply and demand for loans to businesses 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. None of the banks surveyed said they had further tightened their credit card lending standards. The numbers put an end, temporarily at least, an 11-quarter run of credit tightening that dates back to 2007. Conversely, most existing cardholders nevertheless face limited and costly credit, according to the survey.
Increasing demand a daunting task
The Fed’s latest band survey found that small company lending standards may be loosening for the first time since just before the recession hit. NPR’s report on the Fed survey said that an ease in lending standards hadn’t been detected since late 2006. The survey was released shortly after a Fed conference on the small business lending problem in mid-July. Federal Reserve Chairman Ben Bernanke noted a serious gap between large corporations building up money and reporting strong earnings and thousands of smaller businesses struggling to get credit. Yet the banks surveyed said a lack of demand for small company loans was the primary problem.
Small business owners pessimistic
It’s been documented that small company owners have complained about the lack of credit since the recession hit. Yet as outlined by Seeking Alpha, demand will continue to be weak because of a negative outlook for small business owners. Small Businesses owners are less optimistic than nearly any point in the past five years as outlined by data from the NIFB Small company Economic Trends report. Only 6 percent feel it is a good time to expand. Within 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.
Additional reading
CreditCards
creditcards.com
NPR
npr.org
Seeking Alpha
seekingalpha.com
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