Strengthening Demand for Business Loans

(Reuters) – U.S. banks report that demand for business loans strengthened in the fourth quarter. The net share of banks indicating an increase has turned positive for the first time in two years, according to a Federal Reserve survey released on Monday.

The net share of banks reporting stronger demand for commercial and industrial loans from large and medium-sized businesses rose to 9.4% in the fourth quarter of 2024, while demand from small firms increased to 3.4%.

Simultaneously, banks tightened lending standards for these types of loans, based on the Fed’s quarterly Senior Loan Officer Opinion Survey.

The results imply that the Fed’s 100 basis points of interest rate cuts last year may have incentivized business borrowing, although the impact on demand for other loan types appeared limited.

Regarding the commercial real estate sector, banks noted both tighter lending standards and generally stable demand, according to the Fed.

For households, banks observed weaker demand for real estate loans, likely due to rising mortgage rates last quarter, alongside reduced interest in credit card and other consumer loans, while demand for auto loans remained relatively unchanged.

Fed officials considered the survey results when they opted to keep short-term borrowing costs stable within a range of 4.25%-4.50% last week. This decision was influenced by slow progress toward their 2% inflation goal, a robust labor market needing no additional monetary policy support, and uncertainties regarding the economic impacts of policies under President Donald Trump.