Banks See Bump in Small Business Lending, Fed Says

WASHINGTON — Banks have seen a mild uptick in retail small business lending applications in the past quarter, though most other demand indicators remain flat, according to a Federal Reserve Board report released Monday.

The Fed's quarterly Senior Officer Loan Survey found that 28% of respondents experienced "moderate" increases in small business applications, while 33% said applications were about average. Another 20% of banks said their applications were moderately below average in the past quarter.

Some bank loan officers also reported a moderate tightening of underwriting policies for small business loans, particularly with respect to liquidity positions, debt-to-income ratios and FICO scores.

Despite the lethargic small business loan market, however, the Fed survey said that "most banks expected a moderate increase in retail small business lending over the next year." The survey says nearly 70% of responding banks expected retail small business lending to increase in 2015.

The survey comes as the Fed ended its quantitative easing program late last month. The program was started in 2008 to inject capital into the ailing financial system and buoy commercial lending, but the program's cessation is seen as a precursor to higher federal interest rates. The Fed nonetheless indicated last week that it does not intend to raise interest rates any time soon.

Banks' responses to the Fed survey suggest that the commercial lending market is generally subdued. Household lending demand was unchanged from the previous quarter, the report says, except for a somewhat stronger demand for auto loans. Demand for commercial and industrial loans, meanwhile, remained essentially unchanged, with only a handful of banks reporting any increase in demand.

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