Demand for Small Business Loans Most Since 2005

Posted by: John Tozzi on January 30, 2012

Banks reported the greatest increase in demand for loans from small companies since 2005, the according to the Federal Reserve’s survey of senior loan officers out today. That may be good news for job growth later in the year. From Bloomberg News:

While business demand for borrowing increased, banks reported “little change in standards on commercial and industrial loans but a continued easing of pricing terms,” the survey said. The pickup in business lending was a reversal of the previous survey, released in November, in which more banks reported a drop than an increase in demand.

Banks and businesses may be “moving away from the ‘buckle down’ approach,” said Drew Matus, senior economist at UBS Securities LLC in Stamford, Connecticut.

“If a firm wants to expand they typically need to borrow money to do it,” Matus said. “So at a minimum this suggests we should still be looking for decent job growth over the next three to six months.”

Small firms in this case are defined as companies with less than $50 million in annual sales. Of 53 banks that answered the question, 14 said they saw stronger demand from small firms and six said they saw weaker demand. In the last survey, released in October, only four banks said demand from small companies was stronger, and 13 banks said it was weaker.