Need a loan? Good luck: Banks continue to tighten up on small-business lending, according to the Federal Reserve's quarterly survey of senior loan officers.
The Fed's second-quarter survey, which was released on May 17, found 36% of banks were tightening loan standards to small customers, and that 22% were increasing their "spread" -- the markup over their own cost of funds.
On the bright side, both of those numbers are down from the first quarter, which means that banks are turning the screws more slowly. Meanwhile, small businesses continue to get kid-glove treatment. For instance, half of all lenders reported tightening terms to big borrowers, and 44% said they were increasing spreads -- double the level for small business.
UPS AND DOWNS. Separately, the National Federation of Independent Business is reporting that interest rates crept up a tenth of a point, to 9.7%, last month. But the survey was taken before the half-point rate cut on May 15, and small-business rates tend to move in virtual lockstep with that benchmark. Indeed, Harris Bank of Chicago, which makes a point of touting its below-market rates for entrepreneurs, announced two days after the cut that it was reducing the small-biz rate for its best customers to 6.5%.
Entrepreneurs, bankers, economists, and other pundits say small companies have held up reasonably well during the downturn. It is, however, too soon to tell if they'll escape unscathed, according to Ed Safady, chief executive of Liberty Bank, an Austin-based independent bank that works primarily with small businesses. He says that while small businesses in his region are being more cautious about spending, they are not pulling back to any drastic extent.
On the plus side, Safady says, rents are likely to fall, the pool of job candidates has improved, and so has employees' etiquette. "It has
given a lot of employees pause. It used to be 'I'll just leave you a voicemail telling you I'm out of here because I found a better job.' There's a new respect for job stability," says Safady. These economic clouds may have a silver lining after all. By Rick Green in New York and Lori Hawkins in Austin