Fewer banks are tightening lending standards, raising hopes for easier loan access ahead

NEW YORK (AP) — Fewer banks tightened lending standards as 2023 came to a close, a hopeful sign for businesses that broader loan access is on the horizon.

Lending standards are essentially the measures used by a bank to determine whether a business or person gets a loan. Tighter standards, such as stronger credit and collateral requirements for applicants, tracked the Federal Reserve’s historic rate hikes starting in 2022. Those rate increases have successfully cooled inflation without knocking the economy into recession.

Wall Street is now betting the Fed could start lowering rates by the middle of the year, and banks are showing signs of relief.

A January survey from the Federal Reserve showed that the share of banks who tightened lending standards for commercial and industrial loans fell to 14.8% in the fourth quarter. That’s down from 33.9% in the third quarter and a significant drop from 50.8% in the second quarter of 2023. The survey showed a similar pattern for consumer loans and credit cards, though at a softer pace. Overall, bank loans to businesses stagnated in 2023 after steadily rising in 2022.