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Demand still weak as loan rules ease

Associated Press / November 9, 2010

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WASHINGTON — Banks loosened lending standards for small businesses over the past three months but demand for loans remained weak, the Federal Reserve said yesterday.

It marks the second time in nearly four years that banks have made loans easier for small businesses to obtain, according to the Fed’s quarterly survey. The first breakthrough came in August. The Fed defines small businesses as those with annual sales of less than $50 million.

Banks pointed to a more “favorable or less uncertain economic outlook’’ and increased competition as reasons for loosening lending standards.

Even so, demand for commercial and industrial loans declined over the last three months, the Fed said.

Banks reported an increased willingness to make consumer loans. Some said they eased standards for credit card applications; a few, however, reduced the size of credit lines on existing credit card cards and tightened terms for new applications.

During the depths of the financial crisis in 2008, banks tightened lending standards. Despite the recent loosening on some loans, it is still much harder to get a loan than it was before the crisis.