Credit standards tightened in the first quarter of this year as commercial and industrial lending fell nearly 16 percent from a year ago, according to a recent Federal Reserve Bank of Kansas City survey of 130 commercial banks.
According to the report, commercial and industrial lending fell 6.8 percent from the previous quarter due to reduced lending from large banks. Small business loan balances fell by 7.6 percent from a year ago amid weakened loan demand and tightening credit standards, steep drops in new small business C&I lending and continued decreases in outstanding PPP loan balances.
Despite the drop in small business lending, total loans and total C&I loans increased 9.8 percent and 13.5 percent, respectively. Small business loans increased by 1.6 percent from the previous quarter. However, the vast majority said that small business lending was not constrained by the availability of market liquidity; instead, a majority cited greater competition for deposits as a greater hindrance.
“Respondents reported declining loan demand for the fourth consecutive quarter, with the largest percentage of respondents reporting softening demand since the survey began,” the report stated.
Other report findings included:
- Median interest rates increased for new small business term loans as variable and fixed median rates were listed at 7.9 percent and 7 percent, respectively, in the first quarter. Since the start of 2022, median interest rates on fixed and variable rate term loans have increased by about 275 basis points and 350 basis points, respectively.
- Use of small business credit lines remained stable in the first quarter at 32 percent.