U.S. Banks Lend to More Businesses as Economy Improves

More companies and small business are borrowing money, and banks are lending more to private enterprises, in a sign that the U.S. economy is continuing to improve.

On Wednesday afternoon, the Federal Reserve released a statement confirming that more banks throughout the country were lending to more businesses in the last three months. The Fed also noted that commercial and residential real estate loan demand had risen as more companies look to invest in expanding their operations.

More companies and small business are borrowing money, and banks are lending more to private enterprises, in a sign that the U.S. economy is continuing to improve.

On Wednesday afternoon, the Federal Reserve released a statement confirming that more banks throughout the country were lending to more businesses in the last three months. The Fed also noted that commercial and residential real estate loan demand had risen as more companies look to invest in expanding their operations.

“On the demand side, a significant fraction of banks reported having experienced stronger demand for C&I [commercial and industrial] loans from firms of all sizes on balance,” the Federal Reserve said in its report. “To explain the reported increase in loan demand, banks cited a wide range of customers’ financing needs, particularly those related to investment in plant or equipment, accounts receivable, inventories, or mergers or acquisitions.”

Household Lending Slow, but Growing

While banks cited commercial and industrial enterprises as the source of most lending demand growth in the last three months, banks also noted that prime residential mortgage demand was growing at a steadier pace, and that lending standards had not changed in any significant way. Banks told the Fed that there was even less demand for nontraditional mortgages and home equity lines of credit (HELOC), despite interest rate declines throughout the first half of 2014.

Although home loan growth remained tepid for most banks, other forms of consumer credit were growing at an even slower rate. One important exception was credit cards, which banks are issuing at a faster rate over the past three months. When asked if credit standards for credit cards had tightened or loosened, 13% of banks said they had eased, and 87% said credit standards had remained unchanged. No respondents said they were being stricter when assessing credit card applications, but subprime credit card lending remained tighter as banks continued to keep lending standards above their pre-crisis levels.

Commercial Real Estate Lending Strengthens

The Federal Reserve noted that commercial real estate lending standards had eased much more than home lending standards, a leading indicator of economic growth and a hint that aggregate demand within the United States is expected to rise further in the coming months. According to the Fed, domestic banks “reported having eased standards on most types of commercial real estate (CRE) loans on balance.” Most banks said that lending standards had slackened considerably since the post-2008 financial crisis for small firms, which are defined as businesses with annual sales of less than $50 million.

One exception to the growth in commercial real estate lending was investment in new construction, which banks reported was a weak spot in their commercial lending practices. According to the Federal Reserve’s report, “nearly half of the respondents reported that standards on construction and land development loans were tighter than the midpoints of their longer-term ranges,” although the Federal Reserve noted that new commercial real estate loans still remained on the whole easier to acquire than a year ago.