Small Businesses Are Having An Easier Time Getting Loans, Fed Survey Finds

WASHINGTON — Banks have eased lending standards for small businesses for the first time in nearly four years, the Federal Reserve said Monday .

In its new survey of bank lending practices, the Fed found that the loosening of loan standards was occurring primarily at the country's largest domestic banks.

Banks had been reporting relaxed credit standards for big corporations. But the new survey marked the first indication that credit was beginning to ease for smaller companies.

That could be welcome news for small businesses. Many have complained since the recession hit that they were having more trouble borrowing money to keep operating.

The Fed said it was the first time it had found relaxed lending standards being imposed on small businesses since late 2006. The Fed defined small firms as those with annual sales of less than $50 million.

"After three years of tightening credit conditions, this is the first real sign that banks are feeling more comfortable and are starting to ease lending standards," said Mark Zandi, chief economist at Moody's Analytics. "Credit conditions are still incredibly tight, but at least they are easing a bit."

Many economists said they did not look for a rapid improvement in credit conditions, given that the economy remains weak and banks remain nervous about making new loans.

"At least lenders aren't panicking any more," said David Wyss, chief economist at Standard & Poor's in New York. "This gradual improvement is important for the economy because small businesses tend to be big job creators."

The Fed's latest quarterly report on lending was based on responses received to a survey done in late July. It found that the most improvement came in loan areas where banks were facing competition to offer credit.

The survey found that the easing of standards was concentrated at large domestic banks. Most banks were still reporting lackluster demand for credit.

In addition to easier terms for business loans, many large banks also reported having eased standards on various types of consumer loans.

Some large banks reported that they had loosened standards for prime mortgage loans. The banks also reported an increased willingness to make consumer installment loans. A smaller proportion of banks reported that they had eased lending standards on both credit card and other types of consumer loans.

The Fed held a conference on the problem of tight credit to small businesses last month. Federal Reserve Chairman Ben Bernanke noted a serious gap between large corporations who are building up cash and reporting strong earnings and the thousands of small businesses who are struggling to get credit.

Bernanke said banking regulators were applying pressure to get more credit flowing to small businesses, who hire more than half of American workers.

"Making credit accessible to sound small businesses is crucial to our economic recovery," Bernanke had said at the July 12 conference.

Comments

[JimHHoutz]

04:37 PM on 08/24/2010

I am glad that everyone thinks credit is now easier for Small Business owners, but guess what? This doesn’t solve the major problem of Small Business people and Entreprene­urs. Entreprene­urs and the Small Business community are an amazing group of people, they are tough, self reliant and do not ask for a lot of special favors. What they want more than anything is a level playing field, let the government post the rules then get out of the way and let us compete.

We want the marketplac­e, not the government to determine the winners. We want a set of rules which are consistent over an extended period of time. Instead what do we get? Union labor rules for government contracts, bigger reserve requiremen­ts for small banks, mandatory health care for all employees, cap and trade implemente­d by an agency instead of Congress, stimulus package for primarily government agencies, an uncertain plan for year end income tax rates, and Obama’s runaway spending and now increased credit.

Doesn’t anyone in Congress or the White House know what they are doing to the economy? I think the White House does, and the members of Congress should be embarrasse­d because they have not stopped this looting of America.

You may take your increased credit and shove it!!

[itssafetosay]

07:26 PM on 08/19/2010

"The Fed defined small firms as those with annual sales of less than $50 million".

And the SBA defines a "small biz" as revenues of $7M and above. The reality is that most small business owners will never see even a million in revenue a year. But, many can and do support families and a few employees. That is what small business in America is and I imagine, with the job market, that this way of "working" will only increase.

This article is not talking about the majority of what small businesses in the U.S. really are. For those businesses the doors to lending are locked tight. What we need is a new look at what small business really is and how the govt can encourage and help with new lending programs for micro loans.

3rd world countries have these types of programs. Looks like that's what the U.S. needs now...

[Ronald Sloan]

11:02 AM on 08/19/2010

I find it amazing that so many people can not remenber back 20 months ago when the last administra­tion caused the economic melt down, the housing crissis, the wall street crash and
bank crashes.

When this administra­tion actually does some thing that starts to show progress they want to blame the dems that it is to little to late.
If the dems had a little help from the repubs we would be a lot farther along in our recovery.

[Tiggy]

11:24 PM on 08/18/2010

As a small business owner I can tell you that I was not surveyed! Had I been the headline would have read, "Bailed out banks still refusing to Lend" or "Banks cluch tax dollars at the expense of the Tax Payer"

[Rickshaw Man]

07:11 PM on 08/18/2010

Any business that relies on credit to meet payroll is doomed to fail. A sound business should save a portion of there profits, then expand. Once you become a slave to the banks you are doomed. It’s only a matter of time.

[GloriaY]

02:03 AM on 08/18/2010

Then this means that hiring should soon begin, at least on a gradual scale.

[PlayTOE]

04:30 PM on 08/17/2010

"Making credit accessible to sound small businesses is crucial to our economic recovery," Bernanke had said at the July 12 conference­.

And choking off that credit was key to CAUSING the small business meltdown that wiped out middle class America.

Banks are B@$#&%!)$

[patsijean]

03:58 PM on 08/17/2010

That may be what the survey says, but I know of a BabyLock Sewing Center in Rivergate (TN) that went bankrupt because as a small business they could not get the short term loans they needed to keep in business. They used their savings, and borrowed from friends and family but could not make it. This dealership had been in business for several years and expanded 3 years ago. They are wonderful people and provided quality machines, classes and service. Customers were brokenhear­ted. Where were the loans for them? Kind of crazy when you see entire new shopping centers being built (often on the same 4 mile section of highway that already has two big shopping centers). Why was that senseless venture financed and not an establishe­d small venture?

[optimist7]

08:30 PM on 08/17/2010

"The Fed defined small firms as those with annual sales of less than $50 million." My guess is that the BabyLock Sewing Center had annual sales of less than 1% of that $50 million benchmark. More lending needs to be done to businesses with sales of less than $500 thousand.

And you're right about the shopping center mindlessne­ss. My guess is they'll be filled with national chain stores and restaurant­s typical of every shopping center being created around every population center with the identical assemblage of mandatory national chain "merchants­" for such strip malls. Those merchants have annual sales in the billions. No room for the truly small business.

[rikster]

01:51 PM on 08/17/2010

what...!! where...?

[BikeFreak]

01:45 PM on 08/17/2010

Oh yeah...a FEDERAL survey tells us small biz loans are much more available than before.

Right...li­ke this government would NEVER lie to us and TELL us the TRUTH (eyes rolling)

[bisbeeornotbisbee]

05:50 PM on 08/17/2010

BikeFreak, fanned and faved. ITA.

[DontJustFollow]

07:45 PM on 08/17/2010

loans are easier to get but no one really wants them until Obama is safely out of office. as long as he promotes run-a-way spending and the inevitable tax hikes and inflation no one in their right mind is going to go into debt think the economy will improve - - -

[Jim Krow]

09:05 PM on 08/17/2010

Do they give you cards with those talking points printed on them. But you are right about one thing, as long as the Republican­s keep up their present strategy to make sure it does not improve, it won't. If this economy stalls and fails at this point, all the kings horses and all the kings men aren't going to stop it. And all the smug," my job or my business is secure" folks that supported them will find themselves ruing the day. Republican policies are responsibl­e for all of our economic problems, every one of them. Republican­s are the reason the government is as large as it is today and Republican­s, who were left with a $160Bn surplus when George Bush took office managed to screw it up so badly in eight years that this President inherited a $1.3Tn deficit. Sell crazy somewhere else.

[iridium53]

01:40 PM on 08/17/2010

Easier time than when?
When loans were totally unavailabl­e?

So?

[bisbeeornotbisbee]

05:51 PM on 08/17/2010

Aha!!! That's what I couldn't put my finger on and you found it. Fanned and faved, iridium.

[GlenParked]

01:33 PM on 08/17/2010

This informatio­n comes from the same government that tells us the recession ended in December and that unemployme­nt is 9.5%.

And chickens have lips...

[Tiggy]

09:32 PM on 08/17/2010

No lips...but teeth..:-)

[Yikes11]

12:51 PM on 08/17/2010

http://www­.pbs.org/n­ewshour/bu­sinessdesk­/2010/08/m­ore-from-9­9ers-an-up­date-on-gr­egg-rosen-­and-why-so­me-compani­es-say-the­y-still-ca­nt-find-em­ployees.ht­ml

[flashblitzen]

12:38 PM on 08/17/2010

What kind of business can you open up when everyone around you is cutting back?
I still say open a biz selling hope to others. Find a niche in catering to the poor or do something that caters to the rich. Beware of predator business loans and franchise scams.
The unemployed will soon begin to saturate the small biz arena and may have the affect of undercutti­ng bigger business, possibly causing more lay offs. Maybe great for lower prices though.

[optimist7]

08:38 PM on 08/17/2010

hmmm... The bigger businesses couldn't pay their executives lower salaries and bonuses instead of laying off more mainstream employees?

[dbmetzger]

12:26 PM on 08/17/2010

when you talk about small business, there's micro-fina­nce, a growing trend in places like India.
The Debate Around 'Microfina­nce'
SKS Microfinan­ce has gained global acclaim for it's pioneering approach to small-scal­e business loans, but some allege the institutio­n is profiting from exorbitant interest rates