WASHINGTON — U.S. banks seem to be starting to ease requirements for small-business lending, although credit remains abnormally tight, according to Federal Reserve Governor Elizabeth Duke.
“Bank attitudes toward lending, including small-business lending, may be shifting,” she said in testimony before the House Committee on Financial Services and Committee on Small Business.
The Federal Reserve’s most recent Senior Loan Officer Opinion Survey (SLOOS) on bank lending practices showed that banks’ tightening of credit standards for small-business loans appears to be nearing an end.
“There is also some tentative, anecdotal evidence that many bankers may be devoting considerably more energy toward extending new loans in 2010, as contrasted with their overwhelming preoccupation in 2009 with collecting on or writing down loans already on their books,” she said.
The turnaround in lending won’t happen overnight, though, Duke cautioned. “Still, as with improvement in macroeconomic conditions, the impact of the turnaround in bank attitudes and strategies will likely be gradual,” she said.
There is less demand for credit due to high levels of unemployment and increases in personal debt, resulting in suppressed demand for goods and services. Many businesses are reluctant to make new investments.
“According to recent surveys conducted by the National Federation of Independent Businesses (NFIB), financing conditions continued to be ranked as the top business concern by only a modest fraction (less than 5%) of small businesses,” Duke said. “In contrast, about one-third of respondents cited poor sales as their most important problem.”