Lending terms may be improving for businesses

8/17/2011

Despite stock market downturns and turmoil in Washington, the commercial loan and credit industry has been showing signs of stability and possible expansion.

The Federal Reserve released a statement on Monday that showed an easing of commercial and industrial lending standards in July, in addition to a small increase in demand for such loans. The news comes with an apparent dip in real estate-based lending.

Two factors leading to the banking trends may be interest rates and small business initiatives. The Federal Reserve recently announced it would keep rates at the current low rate for a year or longer, meaning more businesses may seek loans for startups and expansions or refinance existing plans. In addition, several small business funding initiatives have been encouraging lending this year, such as the Small Business Jobs Act and U.S. Small Business Administration programs, including the Emerging 200 and state-based projects.

According to the Fed's survey of financiers, the most common reason for easing lending terms (including the costs of both loans and credit lines) was "more aggressive competition from other banks or nonbank lenders." As interest rates hold and government initiatives continue to expand, competition may make loan terms even more favorable for businesses.