Key facts
- Banks reported little change in lending standards for commercial and industrial loans to large and midsized firms, but tighter standards for smaller firms.
- Banks said they tightened requirements for riskier loans but eased or left basically unchanged most queried terms for C&I loans.
- Banks that tightened commercial lending standards most often cited a less favorable or more uncertain economic outlook and worsening industry-specific problems.
- Banks reported sharply weaker demand for residential real estate loans and a slide in auto loan demand, but the strongest uptick in credit card borrowing in four years.
- Oxford Economics analysts called the absence of continued tightening for large firms encouraging and a reason to bet on business investment broadening beyond AI.
Business demand for bank loans weakened last quarter for the first time in more than a year, the Federal Reserve's quarterly Senior Loan Officer Opinion Survey showed on November 2, though banks said some borrowers were seeking cheaper financing elsewhere.
The survey found banks cited decreasing customer investment in plant or equipment products and customer borrowing shifting to more attractive bank or nonbank funding sources as important reasons for weaker demand. The last time the survey showed softening demand for commercial loans was in the second quarter of 2025, but banks did not then cite borrowers moving to other lenders as a reason.
A government report last week showed business spending on equipment surged at a 20.9% annualized rate last quarter, adding more to GDP growth than in any quarter in six years.
Loan officers reported little change in lending standards for commercial and industrial loans to large and midsized firms, but tighter standards for smaller firms. They said that while they tightened lending requirements for riskier loans, they eased or left basically unchanged most queried terms for C&I loans.
That the survey did not show banks continuing to tighten lending standards for large firms, as they have for most of the past couple of years, is encouraging, analysts at Oxford Economics wrote. They called it another reason to bet on the broadening out of business investment beyond AI.
The report was among pieces of data Fed policymakers had in hand when they decided to keep short-term borrowing costs unchanged at their meeting on October 27-28. For banks that said they had tightened commercial lending standards, the most frequently cited reasons were a less favorable or more uncertain economic outlook and a worsening of industry-specific problems.
Banks also reported sharply weaker demand for residential real estate loans and a slide in demand for auto loans, but the strongest uptick in demand for credit card borrowing in four years.