Lending standards easing up after years of tight credit

A Federal Reserve financial institution survey has found that lending standards are showing signs of loosening. Getting approval for a new charge card is more likely now than it’s been in the last three years. Smaller businesses are seeing more liberal lending standards at banks for the very first time in four years. Lack of small company credit has been identified as a major problem as the United States of America 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.

Credit card lending standards loosen

The Federal Reserve financial institution survey questions bankers about the status of supply and demand for commercial and consumer credit in the preceding quarter. Reporting on the Fed survey, Creditcards.com said about 8 percent of banks had relaxed charge card lending standards for application approval. Of all the banks surveyed, none had tightened credit card lending standards any further. Data from the survey indicates that 11 quarters of steadily tightening credit may start trending the other direction. At the exact same time, the Fed survey shows that credit remains limited and costly for most existing cardholders.

Sparking demand for small business loans

The new Fed survey marked the first indication since shortly before the recession that small company credit was beginning to ease. NPR reports the Fed said it was the first time it had found relaxed lending standards for small company 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 significant gap between large corporations building up cash 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 remain cautious

Since the recession hit it has been noted that many small business owners have complained that they were having more trouble borrowing cash to stay open. Yet as outlined by 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, as outlined by 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 preparing to make a capital purchase. Also persisting at low levels are expectations for expanding inventory, jobs and sales.

Additional reading

CreditCards

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NPR

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Seeking Alpha

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