Say what you will about the Federal Reserve, but those folks know how to run a survey. For example, the Fed’s Small Business Credit Survey contains valuable insights from more than 8,000 business owners across the country. It provides an in-depth look at small business performance, financing choices, and experiences with borrowing money.
Given this legacy of solid surveying, you might be interested in the Fed’s Senior Loan Officer Opinion Survey on Bank Lending Practices, which looks at recent changes in the standards, terms, and demand for personal and business bank loans. While the name is definitely on the long side (let’s just call it the SLOOSOBLP), the data packs a punch.
For this survey, the Fed received data from 72 domestic banks. There were also responses from 22 U.S. branches and agencies of international banks, but their responses weren’t weighed as heavily. So the SLOOSOBLP gives a great look at the lending environment relative to American small businesses.
One important thing to note is that most respondents indicated they had eased up their standards and terms on both commercial and industrial loans. This applies to borrowers of all shapes and sizes, meaning small businesses are among the beneficiaries. In fact, it was from smaller businesses that banks reported seeing the strongest demand for commercial and industrial loans.
When the Fed asked banks to specifically gauge how their current lending standards stack up when compared to the prior 13 years, the banks reported that their standards on commercial and industrial loans are as light as they come. For commercial real estate loans, however, banks said their standards are actually tighter than in the past.
As for loan sizes, a solid number of SLOOSOBLP respondents said they raised the maximum size of credit lines and narrowed loan rate spreads for small businesses. The primary reason for this is increased competition in the lending world. As Entrepreneur explains, banking and lending have “gone through an amazing level of rapid innovation and disruption starting at the turn on the new millennium.”
So it comes as no surprise that the SLOOSOBLP reveals that lenders have a higher tolerance of risk these days, as well as increased liquidity and a favorable economic outlook. It appears that business owners are taking advantage of this more generous lending climate, as many banks report stronger demand for loans coming from small businesses.