1Q small business conditions hold steady

Small business lending conditions were generally stable in the first quarter of 2018, according to the Federal Reserve’s Small Business Lending Survey.

Small business commercial and industrial loan balances declined marginally in the first quarter – by half a percentage point – while new small business C&I loan originations were steady. Loan demand, application approval rates and credit quality also were steady.

Average interest rates on new small business C&I fixed- and variable- rate term loans and fixed-rate credit lines rose in the first quarter, but declined on variable-rate credit lines. Total credit line usage ticked up by a negligible 1.4 percent from fourth quarter.

Demand for small business C&I loans was stable for most banks, with 70 percent of respondents indicating no change in demand. Among the 30 percent reporting a change, more respondents experienced stronger than weaker demand.

Among the 40 percent of the banks reporting that credit standards or loan terms changed, 70 percent of those banks reporting tightening cited industry-specific conditions and reduced risk tolerance as reasons.

Approval rates were just slightly lower for small and midsized banks than during the prior quarter, but higher for large banks. The most commonly cited reason for denying a loan was borrower financials, while collateral and credit history also were cited by some respondents.

Only about 25 percent of panelists reported a change in applicant credit quality over the quarter, with the majority of those panelists reporting an improvement. About half of the panelists cited a change in the debt-to-income level of business owners as a very important reason for the improved credit quality.

The nationwide Small Business Lending Survey, administered by the Federal Reserve Bank of Kansas City, is a quarterly collection of quantitative and qualitative information used to understand credit market conditions for bank lending to small businesses. For the 1Q 2018 period, the respondent sample was 116 banks with $5.8 trillion in assets.