Banks Start to Ease Lending Standards for Large Corporations: What about Small Businesses?

Feb 1st, 2011 @ 9:06 AM by Debbie Dragon

Banks are finally starting to ease lending standards at least for large corporate clients, according to a new survey from the Federal Reserve. According to the survey, banks have felt an increase in competition over the last few months and as a result they are reacting and making some loans easier to get.

While big companies and corporations are seeing the benefit, it is yet to be seen whether or not the lending will trickle down to smaller businesses, whether many new jobs will be created as a result and so on.

From the Federal Reserve Report:

The January survey found that a modest net fraction of domestic respondents continued to ease standards on C&I loans to large and middle-market firms. Few banks reported changing standards on such loans to small firms. The banks that eased standards were almost all large banks.

About 30 percent of banks, on net, reported greater demand from large and middle-market firms, and about 5 percent reported strengthened demand from small firms. In addition, compared with the October survey, a larger fraction of banks reported an increase in inquiries from business borrowers for new or increased credit lines. Of the banks reporting stronger demand, about 75 percent indicated that the increased demand was partly due to funding needs for merger and acquisition activity, and more than half noted reduced borrowing from other banks or nonbank sources.

The next step in business lending would be to see small businesses requesting and receiving much needed funding. Small businesses across the country have been struggling since the financial crisis began to gain funding they need to operate and expand their businesses. Small businesses are critical to economic recovery and it seems like they just can’t get a break.

According to the Obama administration, up to 70% of new jobs come from small businesses and with unemployment remaining at near 10% nationwide, many argue that lending needs to be easier for smaller businesses to get as well. While the increase in lending to larger corporations is a sign that the economy is hopefully on a rebound, job creation is still needed and that will most likely not come until small businesses are able to get the funding that they need.