Small business, industrial lending increased late last year

Small business and commercial and industrial lending slightly increased in the fourth quarter of last year, according to a Federal Reserve Bank of Kansas City Small Business Lending Survey.

Small business lending increased 3.1 percent on a quarterly basis due to a nearly 16 percent increase in new lines of credit balances. Outstanding loan balances increased for the first time in six quarters, according to the report, while new small business lending increased by only 0.2 percent from the third quarter. Total new small business loan balances fell 19.3 percent year-over-year as interest rates continued to rise. 

Outstanding small business commercial and industrial loan balances slightly increased from the previous quarter, after more than a year of declining balances. Total loans and commercial and industrial loans increased 9.1 percent and 15.8 percent year-over-year, respectively. 

Credit application approval rates for mid-sized banks fell by 18 points in the fourth quarter after two straight quarters of increases. Approval rates were flat for small and large banks. “The overall decrease in application approval rates was consistent with three quarters of diminishing credit quality, on net, reported by survey respondents,” wrote Kansas City Fed Assistant Vice President Dustyn DeSpain and Research and Policy Officer Stefan Jacewitz.

Median interest rates for new small business term loans increased late last year. Variable and fixed interest rates were reported at 7.44 percent and 6.44 percent, respectively. The impact of supply chain disruptions on small business lending eased, and usage of small business credit lines remained stable at 32 percent, despite a slight rise in the use of fixed rate credit lines. 

“On net, respondents indicated that all loan terms tightened with the spreads of loan rates over cost of funds, cost of credit lines and level of interest rate floors tightening the most,” DeSpain and Jacewitz wrote. “Respondents cited less favorable or more uncertain economic outlook, worsening industry-specific problems and reduced tolerance for risk as the primary drivers.”