10 Straight Quarters of Tightening Credit for Small Business

Banks are still tightening credit standards for small businesses, but not to the degree they did at the end of last year. That’s according to the Fed’s quarterly survey of senior bank loan officers is just out (summary here, PDF here). More than 40% of banks surveyed said they had raised credit standards for commercial and industrial loans to small firms (under $50M in revenue) in the last three months, but that’s down from 69% in the last survey released in January. This is the 10th straight quarter that a net percentage of banks has reported tightening credit to small firms.

It’s important to note that these surveys ask about behavior over the last three months, so banks that raised their credit standards at the end of 2008, and have maintained those tighter standards, wouldn’t be counted in the 40% figure.

Also worth noting: loan demand is still dropping. More than 60% of banks said demand for C&I loans from small firms was down over the last three months. Banks attributed this in particular to decreased investment in equipment, as well as less need for financing inventory, accounts receivable, and acquisitions.

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