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Entrepreneurs may be starting to feel like Bill Murray in Groundhog Day, because once again, banks reported tighter lending standards and weaker demand for business loans, according to the fourth quarter Senior Loan Officer Opinion Survey released by the Federal Reserve on Monday.
That may sounds like six more weeks of credit winter, but the survey did include a silver lining sliver of good news for entrepreneurs. Compared with the last survey, fewer banks stiffened their lending standards.
For small businesses with annual revenue below $50 million, 18.6 percent of banks tightened lending standards somewhat or considerably, down from 30.4 percent in the third quarter. The vast majority of lenders, 81.4 percent, said their loan criteria remained the same, up from 69.6 percent. This reduction in credit was more pronounced among the default lenders for small business owners, small and regional banks, while most large lenders, which did not have much more room to tighten, kept their small business loan standards unchanged.
As part of the survey, bankers were also asked about their outlook for small business loans over the next twelve months, and the responses hinted that the credit crunch that entrepreneurs have been feeling for a year now could be at its peak. In 2024, 83.9 percent of banks expect to keep their approval standards for small business loan applications or credit lines unchanged. Only 8.9 percent predicted their institution would further restrict lending, while 7.1 percent of banks anticipated easing credit access.
Despite the past few months of steadily improving economic data, bankers are still feeling skittish about expanding their loan portfolio, and that's keeping them from getting to yes with more small businesses. In the survey, lenders most frequently cited a less favorable economic outlook, reduced tolerance for risk, and an expected deterioration in customers' collateral values as reasons why they had tightened loan standards. When asked what could motivate their institution to approve more loan applications, the answer was clear: a more favorable, or at the very least, less uncertain economic outlook.
While loan access remains dicey for small business owners, credit has still not cracked the threshold of most pressing problems. Over the past year, small businesses owners have consistently cited inflation and hiring as the biggest drags on business when polled by the National Federation of Independent Business. In the trade association's most recent monthly survey in December, only three percent of business owners said their borrowing needs were not fully met, from two percent in November. While a net 8 percent reported their last loan was harder to get than previous ones, the majority of business owners surveyed, 61 percent, said they were not interested in obtaining a loan.
That tracks with the Federal Reserve survey, which found weaker loan demand overall in the fourth quarter. Among small business clients, 31 percent of banks reported less demand, while 60.3 percent said business was the same as the third quarter. Still, 40 percent of lenders predicted that demand for small business loans would improve over the next year, because of an expected decline in interest rates. Though a majority of banks reported that they predicted the quality of those small business loans would deteriorate in 2024.
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Has the Credit Crunch Peaked? Lenders Offer Their Take in New Report
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06.02.2024
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Entrepreneurs may be starting to feel like Bill Murray in Groundhog Day, because once again, banks reported tighter lending standards and weaker demand for business loans, according to the fourth quarter Senior Loan Officer Opinion Survey released by the Federal Reserve on Monday.
That may sounds like six more weeks of credit winter, but the survey did include a silver lining sliver of........
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