In the face of the smaller regional banks struggling to stay afloat, smaller banks are tightening lending standards while bigger banks are taking over loans regional banks won’t touch.
When there is an expected recession, lending practices become stricter due to more perceived risk to lenders. However, these tighter standards are applying pressure to smaller businesses across the U.S.
Small businesses make up roughly 44% of America’s GDP (According to the U.S. Small Business Administration). With that said, having close to half of America’s GDP feeling the weight of restrictions is a concern.
According to an opinion survey conducted by the Federal Reserve. Bank employees are reporting tightened lending standards for households and businesses. As a result, banks have seen reduced demand from January through March. Significant shares of banks decreased maximum loan size and market areas covered, as well as decreased maximum loan maturity.
Banks are raising interest rates on commercial real-estate loans by more than 3 percentage points and increasing the required amounts for down payments.
Some small business owners are considering seeking funding from private sources rather than banks.
Goldman Sachs surveyed 1,740 small businesses in May on the current lending situation. Two critical points within the survey are -
77% of respondents reported concern about their ability to access capital, a substantial shift from one year ago when 77% said they were confident in their ability to access capital.
60% say rising interest rates are affecting their ability to pay existing debt.
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