Banks made it easier for businesses to get loans in the first quarter, fueling increased purchases of products and equipment as well as more merger activity, the Federal Reserve said Monday.
The picture for consumers was fuzzier, according to the Fed’s quarterly survey of bank lending. Demand weakened for mortgage loans and banks reported changes in lending standards were either mixed or stricter the past three months, the Fed said. But demand for credit card and auto loans picked up, and banks opened the lending spigots wider for those borrowers.
Bank credit standards have been easing recently, boosting the economy, but much of the past three months has been marred by adverse weather that dampened activity.
“On balance, banks eased their lending policies for commercial and industrial (C&I) and commercial real estate (CRE) loans and experienced stronger demand for both types of loans over the past three months,” the Fed said in its senior loan officer survey.
Both small and large firms applied for more loans, the Fed said. The central bank cited customer financing needs, “particularly those related to inventories, accounts receivable, investment in plant or equipment, and mergers or acquisitions.”
The banks surveyed cited more aggressive competition from banks and other lenders as the biggest reason for easing their credit standards. In recent years, alternative lenders have sprouted widely, charging higher interest rates but making it much simpler for small businesses to get loans. Some, such as Kabbage, have automated the lending process online.
“Banks are starting to feel the heat” from the non-traditional lenders, says Rohit Arora, CEO of Biz2Credit, a service that connects customers and lenders.
With banks stepping up their response to the competition, small businesses “finally can get access to cheap and long-term capital, Arora says.
About 14% of banks eased their standards for loans to midsize and large companies while only about 3% tightened their standards. Meanwhile, 10% of banks eased their criteria for small businesses, and only 3% toughened them.
Most banks said consumer demand for mortgages softened. Average 30-year fixed mortgage rates have risen nearly a percentage point the past year, but since January they’ve fallen to 4.29% from 4.53%.
More than 14% of banks tightened their credit standards for prime mortgages, while about 13% eased their criteria. For non-traditional and sub-prime mortgages, far more banks toughened their standards than eased them.
Nearly 8% of banks said they eased their standards for auto loans, with fewer than 2% tightening. And about 14% eased their criteria for credit cards, and none tightened.
The Fed surveyed 74 domestic banks and 23 U.S. branches and agencies of foreign banks.
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