Banks Tighten Lending for Small Biz, CRE, Subprime Borrowers — SkimNews
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- U.S. banks tightened lending standards for small businesses in the third quarter, citing a less favorable economic outlook and industry-specific risks, while standards for large and mid-sized firms remained unchanged
- Commercial real estate lending saw broad tightening across construction, nonfarm nonresidential, and multifamily properties, with banks reporting weakening demand in all CRE categories
- Nonbank financial institutions including private equity funds faced tighter credit as lenders cited deteriorating financial strength among borrowers and rising liquidity demands
- Household credit became more selective, with banks more likely to approve prime and super-prime credit card applicants but less likely to approve subprime borrowers, especially at small banks
- The 10-year Treasury yield reached 5.349% on Oct. 5, its highest level since 2002, contributing to higher borrowing costs across mortgages, auto loans, and credit cards
- The Federal Reserve's SLOOS report for October, based on 61 domestic and 18 foreign banks, tracks lending standards and demand—not actual loan volumes—providing a forward-looking view of credit conditions
Why it matters: Small businesses and lower-income households face higher borrowing barriers just as credit costs peak, worsening financial strain already reflected in rising delinquency rates—20% of families were behind on loan payments by end-2025, up from 12% in 2022. This tightening could slow economic growth where it's most vulnerable.
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