The most recent survey of bank loan officers by the Federal Reserve reveals that 95% said credit standards required for small business loans remained unchanged in the second quarter. This means only 5% of loan officers and their banks feel that they’ve relaxed their credit standards.
For small business owners, the continued tightening of credit standards makes it harder to get a loan. This begs the question, what’s behind these tightened standards on loans? There are a few explanations, but here are the two most often cited by financial institutions:
- New fund requirements. One factor is the requirement that community banks hold on to more funds. Some are finding that this is restricting their ability to make loans.
- Preparation for the future. Financial institutions are also holding back as a way to build more capital in preparation for new higher required reserves.
Ready for the good news? Unlike many banks out there, credit unions are eager to lend!
As banks tightened their lending requirements during the financial downturn, credit unions have increased their small business lending. A September 2011 study commissioned by the Small Business Administration (SBA) found that both during and after the 2007-2010 financial crisis, credit unions increased the percentage of their total assets used for business lending.
Eileen Nolan is NEFCU’s Chief Branding Officer/Senior Vice President. To get in touch with her or to find out how NEFCU can lend a hand, please call 516-561-0030 or visit www.myNEFCU.org.