What the Fed’s Survey Findings Mean for Your Business

Recently the Federal Reserve completed a survey of loan officers from 72 of the US largest banks. The results showed that many banks have recently loosened their standards for lending approval. This can have a direct impact on how your business’ loans are processed and approved as you seek capital.

What did the survey find?

The Federal Reserve surveyed the leading loan officers from 72 major U.S. and 22 U.S. branches of major foreign banks to see how their spending had changed and what their current rates were. They found that bank lending is increasing, with bank officers revealing that the improved economic outlook and increasing competition from outside lenders, like brokers, private lenders, and equity firms, contributed to an easing of business loan standards for corporate borrowers of all sizes in the second quarter of the year. The survey also reveals that banks are feeling more inclined to offer loans to borrowers who they usually consider a risk.

This survey is important because economists use it to judge the health of lending in the economy and use that information to infer the overall health of the economy. If the lending forecasts look lower than the economy may be in for a downturn. So, the fact that banks are loosening their requirements shows continued faith in commercial growth and in the success of those businesses.

What does this mean for your business?

This is good news for borrowers.  When lenders compete, borrowers win. Competition from the banks creates incentives for both competing banks and non-bank lenders to offer better rates and increase their approval rates. The new policies, compared to prior years, make it easier for smaller, more risky borrowers to receive capital from banks.

That said, it is critical to remember that this survey is looking at banks today compared to banks last year.  Banks are still highly conservative lenders.  They are slightly less conservative than last year, but they remain very risk-averse. This means that it is still critical to be prepared when meeting with loan officers.

What you should do.

A more competitive lending environment creates sizeable opportunities for borrowers.  To take advantage of these opportunities, however, the borrower needs to pitch their loan package to a wide variety of lenders. 

Typically, the easiest way to achieve this is to locate a broker who works with a wide variety of banks and non-bank lenders (such as our firm) and who specializes in creating competition from lenders.  Discuss how they would handle a loan like yours, including what banks they work with, what their rates are, and what non-bank lenders they would be pitching.

Whether you are working with a bank or a direct private lender, the same recommendations apply. Have your business plan ready, know your credit score, and organize the necessary paperwork in advance. Brokers, such as our firm, will often help you with this preparation process. But whether you are doing it or your broker is doing it for you, the more documentation you have prepared, the easier it will be for you to get approval.   

Once you have received the first offer, review the terms carefully with an impartial advisor. Banks – just as any lender – may offset their riskier investments by requiring a higher interest rate or more collateral, or by making more stringent requirements for repayment.

After you understand the details of the first offer, the shopping continues.  Just because the first lender makes an appealing offer doesn’t mean it’s the best offer you can receive. Banks are competing with private capital today, and private lenders know it.  A private lender firm may be willing to offer better terms to compete with the bank, and the Fed’s survey found that banks are doing the same to compete with private money. So, if you’re looking for someone to help you create this lending competition and secure the best rates, give our team a call today.

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