For the first time since late 2006, banks have loosened lending standards for small businesses, according to a Federal Reserve report released on Monday.
In its most recent quarterly survey of bank lending practices, the U.S. central bank found that loan standards were easing mostly at the largest U.S. banks over the three months ended in July.
Banks reported easing credit standards for large and mid-sized businesses in the Fed's April survey, but the latest results are the first sign of relaxing credit for small companies.
Eight of 55 respondents said they eased lending standards for small firms somewhat, while 80 percent said standards remained basically unchanged. Still, even a modest improvement is welcome in the current brutal lending environment for small businesses. A recent National Small Business Association survey found that 41 percent of small-business owners can't obtain adequate financing, the highest percentage in 17 years. In a separate July study by the National Federation of Independent Business, 91 percent of small-business owners said they couldn't get the credit they needed.
The Fed described the lowered spreads on loan rates and the trimmed costs of credit lines -- the way most banks have eased up -- as a "modest unwinding of the widespread tightening that has occurred over the past few years."
The July survey of loan officers at 57 U.S. banks and 23 foreign banks doing business in the country found that the most improvement came in loan areas where banks were facing competition to offer credit. For The Fed's survey purposes, a "small firm" is one with annual sales of less than $50 million.