Has increased competition by small banks and non-bank lenders forced the big banks to “lighten up” their standards? Business lending is experiencing and increased demand, according to the Federal Reserve.  In response to the demand, business lending is up among larger banks. Interestingly, the tight credit standards seem to have eased to allow the Goliath’s to compete with the David’s in the business financing arena. This could be good news for small business looking for commercial financing and lower rates.

[sws_divider_line]

Source: Wall Street Journal Blog, April 30 2012, by David Reilly

Banks aren’t racing to loosen pricing or lending criteria for mortgages, as reported in today’s Heard on the Street column. But that isn’t the case when it comes to business lending.

A quarterly survey of senior loan officers by the Federal Reserve, released Monday, found that business lending, or commercial and industrial loans, was enjoying increased demand – and greater competition among banks. The Fed reported that this was the second consecutive survey in which domestic banks reporting stronger demand for such loans outnumbered reports of weaker demand.

Reflecting this, business funding at commercial banks in the U.S. have risen about 15% between March 2011 and April 18, according to Fed banking-industry data. Among larger banks, business lending has been up nine of the past 10 weeks according to a report put out Monday by Jason Goldberg, bank analyst at Barclays.

Notably, the Fed survey also reported that while most banks kept business-loan conditions unchanged, a number of domestic banks reported having eased standards for those who got them. Of these, some had decreased the cost of loan rates to both medium and large companies, while a smaller group of banks also reduced their “use of interest-rate floors and reduced costs of credit lines.

The reason, at least among banks easing their terms: “more-aggressive competition from other banks and nonbank lenders.”

That is good for business owners, who should enjoy a lower cost of funding. If that helps spur further credit creation and growth, it should also be positive for the economy overall.