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Banks Are Easing Business Loan Terms: Fed Survey

Banks are seeing greater demand for business loans, and some say they’re giving business borrowers of all sizes more favorable loan terms to compete, according to the Federal Reserve’s latest survey of bank loan officers, which was published today. A significant share of lenders said they lowered the cost of loans and credit lines in the last quarter, as Bloomberg News reports. Most banks that eased credit “cited more-aggressive competition from other banks or nonbank lenders,” the Fed survey said.

What’s driving businesses’ appetite for borrowing? The Fed survey says it’s “funding needs related to investment in plant or equipment, inventories, and accounts receivable.” Banks seeing stronger loan demand “also cited shifts in customer borrowing to their bank from other bank or nonbank sources because those sources became less attractive.”

Small business lending shrank each year since the 2008 financial crisis through 2012, as my colleague Patrick Clark reported last month. It’s not clear yet whether that trend might turn around in 2013, but if banks are competing for borrowers, that’s good news for small businesses and for the U.S. economy.

Tozzi is a reporter for Bloomberg Businessweek in New York.

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