Small Business C&I Lending Declines in the First Quarter
Small Business C&I Lending Declines in the First Quarter

Download Article

Small business commercial and industrial (C&I) loan* balances decreased compared to first quarter 2021, the last full quarter of the Paycheck Protection Program (PPP). New small business loan balances demonstrated the most dramatic decline of approximately 76 percent, while outstanding small business loan balances decreased by 36 percent. When compared to the previous quarter, small business lending also declined but at a less significant rate. The survey’s 122 respondents, on net, reported increased loan demand and increased credit quality in the first quarter but indicated tightening credit standards and loan terms. Most respondents, to the survey’s special question on supply chain disruptions, indicated that the disruptions had no impact on their small business lending.

Chart 1: Outstanding Small Business Loan Balances Decrease


Skip to data visualization table

Note: Items are calculated using a subset of 90 respondents that completed the FR 2028D for the last five quarters surveyed.

Sources: Call Report, Schedule RC-C Part I, items 4. Commercial and Industrial Loans and 12. Total Loans and Leases Held for Investment and Held for Sale; Small Business Administration, and FR 2028D, items 4.b and 5.c.

Note: Items are calculated using a subset of 90 respondents that completed the FR 2028D for the last five quarters surveyed.

Sources: Call Report, Schedule RC-C Part I, items 4. Commercial and Industrial Loans and 12. Total Loans and Leases Held for Investment and Held for Sale; Small Business Administration, and FR 2028D, items 4.b and 5.c.

Quarter-Over-Quarter Total Loans C&I Loans Small Business C&I Loans
2021:Q2 -0.1 -2.86 -13.1
2021:Q3 0.01 -1.67 -16.53
2021:Q4 5.46 8.16 -4.28
2022:Q1 1.42 4.46 -7.64
Year-Over-Year 2022: Q1 6.85 7.91 -35.87

Small business loan balances in the first quarter decreased 7.6 percent quarter-over-quarter and 35.9 percent year-over-year. The continued year-over-year decline in small business loan balances is largely attributable to the expiration of the PPP and continuing forgiveness of PPP loan balances. According to the SBA, 90 percent of total PPP loan balances had been forgiven as of March 27, 2022, a 7 percent increase compared with the fourth quarter of 2021. Total loans and total C&I loans increased 6.9 percent and 7.9 percent, respectively, compared with the first quarter of 2021.

Chart 2: New Small Business Loans Decline Substantially Year-Over-Year


Skip to data visualization table

Note: Items are calculated using a subset of 90 respondents that completed the FR 2028D for the last five quarters surveyed. All loan types referenced in Chart 2 refer to small business lending.

Sources: FR 2028D, items 7.b and 8.c.

Note: Items are calculated using a subset of 90 respondents that completed the FR 2028D for the last five quarters surveyed. All loan types referenced in Chart 2 refer to small business lending.

Sources: FR 2028D, items 7.b and 8.c.

Quarter-Over-Quarter New C&I Loans New C&I Term Loans New C&I Credit Lines
2021:Q2 -60.65 -65.08 -18.54
2021:Q3 -37.9 -51.06 15.66
2021:Q4 5.96 -1.39 18.61
2022:Q1 -9.02 -9.87 -7.79
Year-Over-Year 2022:Q1 -76.44 -84.81 3.05

New small business loan balances decreased 76.4 percent in the first quarter compared with the previous year, driven by an 84.8 percent decrease in new term loans. The majority of the decrease in new term loans is attributable to the expiration of the PPP program and ongoing PPP loan forgiveness and paydowns. Quarter-over-quarter, new small business lending declined 9.0 percent due to a combined decrease in new term loans and credit lines. The decrease in new small business lending could be attributed to declining demand resulting from rising interest rates near the end of the first quarter.

Sources: FR 2028D, items 5.b and 5.c.

Quarter Total Fixed Rate Variable Rate
2017:Q4 38.28 36.33 38.44
2018:Q1 38.79 29.62 39.87
2018:Q2 38.84 35.07 39.2
2018:Q3 37.91 39.85 37.71
2018:Q4 40.76 43.25 40.49
2019:Q1 41.05 43.66 40.77
2019:Q2 39.71 41.38 39.53
2019:Q3 39.43 37.56 39.66
2019: Q4 39.73 37.15 40.04
2020:Q1 39.98 36.42 40.34
2020:Q2 35.26 37.69 34.99
2020:Q3 33.46 40.64 32.66
2020:Q4 32.2 40.72 31.33
2021:Q1 30.83 38.2 30.16
2021:Q2 30.77 39.17 29.97
2021:Q3 32 44.04 30.94
2021:Q4 31.56 41.86 30.71
2022:Q1 31.79 41.35 31

The overall use of small business credit lines remained stable at 32 percent in the first quarter of 2022, despite a slight decline in the utilization of fixed rate credit lines. The use of variable rate small business credit lines paralleled total credit line usage at 31 percent quarter-over-quarter. As of first quarter 2022, respondents indicated that variable rate lines make up about 90 percent of total credit line usage.

Chart 4: Rates Increase Slightly on New Term Loans


Skip to data visualization table

Note: Items are calculated using a subset of 90 respondents that completed the FR 2028D for the last five quarters surveyed

Source: FR 2028D, item 7.c.

Note: Items are calculated using a subset of 90 respondents that completed the FR 2028D for the last five quarters surveyed

Source: FR 2028D, item 7.c.

Quarter Fixed Variable
2021:Q1 1.3 4.19
2021:Q2 2.51 4.24
2021:Q3 4.16 4.25
2021:Q4 4.13 4.3
2022:Q1 4.28 4.47

Median interest rates increased slightly for both variable and fixed rate small business loans in the first quarter of 2022. The variable rate median was reported as 4.47 percent and the fixed rate median was reported as 4.28 percent, both increasing approximately 17 basis points from the previous quarter. Since the first quarter of 2021, the median fixed rates on term loans have increased about 3 percent, consistent with the forgiveness of PPP loans that originated at an interest rate of 1 percent.

Chart 5: Rates Increase on New Lines of Credit


Skip to data visualization table

Note: Items are calculated using a subset of 90 respondents that completed the FR 2028D for the last five quarters surveyed

Source: FR 2028D, item 8.d.

Note: Items are calculated using a subset of 90 respondents that completed the FR 2028D for the last five quarters surveyed

Source: FR 2028D, item 8.d.

Quarter Fixed Variable
2021:Q1 4.19 4.08
2021:Q2 4.25 4.19
2021:Q3 3.99 4.14
2021:Q4 3.88 4.21
2022:Q1 4.16 4.49

Median rates on new small business lines of credit increased for both variable and fixed rate lines in the first quarter of 2022. The median interest rate for variable rate lines of credit was reported as 4.49 percent and the fixed rate median was reported as 4.16 percent, increasing about 28 basis points from the previous quarter. The variable rate increase is directionally consistent with the Federal Open Market Committee’s (FOMC) 50 basis point increase announced on March 16, 2022.

Chart 6: New Loans with Interest Rate (IR) Floors Decrease


Skip to data visualization table

Sources: FR 2028D, items 7.a, 7.f, 8.a, 8.e and Federal Reserve Bank of St. Louis, 3-Month Treasury Constant Maturity Rate.

Sources: FR 2028D, items 7.a, 7.f, 8.a, 8.e and Federal Reserve Bank of St. Louis, 3-Month Treasury Constant Maturity Rate.

Quarter Percent of New Loans with IR Floor 3-Month Treasury Rate
2017:Q4 8.07 1.21
2018:Q1 6.22 1.56
2018:Q2 8.86 1.84
2018:Q3 9.43 2.04
2018:Q4 8.64 2.32
2019:Q1 7.98 2.39
2019:Q2 8.15 2.3
2019:Q3 8.58 1.98
2019:Q4 8.80 1.58
2020:Q1 8.00 1.11
2020:Q2 9.82 0.14
2020:Q3 8.60 0.11
2020:Q4 8.39 0.09
2021:Q1 5.47 0.05
2021:Q2 5.85 0.03
2021:Q3 5.67 0.04
2021:Q4 5.85 0.06
2022:Q1 5.01 0.55

The percentage of variable rate loans with interest rate floors has remained relatively stable throughout 2021 but decreased from 5.9 to 5 percent in the first quarter of 2022. In a rising rate environment, as demonstrated by the 49 basis point increase in the three-month Treasury Rate, lenders may be less likely to utilize interest rate floors to hedge against falling rates on new loans.

Chart 7: Respondents Report Increase in Credit Line Usage

Chart 7 shows diffusion indexes for credit line usage. The diffusion indexes show the difference between the percent of banks reporting decreased credit line usage and those reporting increased credit line usage. Net percent refers to the percent of banks that reported having decreased (“decreased somewhat” or “decreased substantially”) minus the percent of banks that reported having increased (“increased somewhat” or “increased substantially”). It should be noted that small banks have total assets of $1 billion or less, midsized banks have total assets between $1 billion and $10 billion and large banks have total assets greater than $10 billion.

Notes: Chart 7 shows diffusion indexes for credit line usage. The diffusion indexes show the difference between the percent of banks reporting decreased credit line usage and those reporting increased credit line usage. Net percent refers to the percent of banks that reported having decreased (“decreased somewhat” or “decreased substantially”) minus the percent of banks that reported having increased (“increased somewhat” or “increased substantially”).**

Sources: FR 2028D, items 11 and 12.

In the first quarter, about 28 percent of respondents reported a change in credit line usage, with about 11 percent of respondents on net indicating that credit line usage increased. On net, increases in credit line usage were reported for all bank sizes. Of the banks reporting a change, 48 percent cited changes in national or local economic conditions as a very important reason for a change while 34 percent cited changes in borrower’s business revenue or other business-specific conditions.

Chart 8: Respondents Report Stronger Loan Demand

Chart 8 shows diffusion indexes for loan demand. The diffusion indexes show the difference between the percent of banks reporting weakened loan demand and those reporting stronger loan demand. Net percent refers to the percent of banks that reported having weakened (“moderately weaker” or “substantially weaker”) minus the percent of banks that reported having stronger loan demand (“moderately stronger” or “substantially stronger”). It should be noted that small banks have total assets of $1 billion or less, midsized banks have total assets between $1 billion and $10 billion and large banks have total assets greater than $10 billion.

Notes: Chart 8 shows diffusion indexes for loan demand. The diffusion indexes show the difference between the percent of banks reporting weakened loan demand and those reporting stronger loan demand. Net percent refers to the percent of banks that reported having weakened (“moderately weaker” or “substantially weaker”) minus the percent of banks that reported having stronger loan demand (“moderately stronger” or “substantially stronger”).

Source: FR 2028D, item 13.

In the first quarter of 2022, about 37 percent of banks reported a change in small business loan demand. On net, the number of large and small banks indicating stronger loan demand was about 6 percent, compared with about 4 percent of midsized banks. The net percent of respondents indicating stronger loan demand has increased from about 9 percent throughout 2021 to 16 percent in the first quarter of 2022, which is the highest level since the inception of the survey.

Chart 9: Some Banks Indicate Increased Loan Demand due to Supply Chain Disruptions

Chart 9 shows that while most banks indicated no change in small business lending from supply chain disruptions, about 26 percent of banks reported that the disruptions increased loan demand for small businesses during the last 12 months.

Source: FR 2028D, Special Question.

While most banks indicated no change in small business lending from supply chain disruptions, about 26 percent of banks reported that the disruptions increased loan demand for small businesses during the last 12 months. The most cited reason for an increase in demand was related to small businesses carrying more inventory due to future supply chain concerns. About 60 percent of respondents indicated loan demand associated with supply chain disruptions remained unchanged while 13 percent indicated loan demand decreased somewhat. The most cited reason for a decrease in demand was related to small businesses having less need for working capital due to constrained inventory availability.

Sources: FR 2028D, items 14.a and 15.

Bank Size Small Midsized Large
2017:Q4 88.14 75.33 51.07
2018:Q1 87 86.15 56.78
2018:Q2 86.32 80.9 48.71
2018:Q3 85.07 85.5 52.83
2018:Q4 82.91 85.18 55.04
2019:Q1 89.81 86.15 55.12
2019:Q2 89.68 81.5 55.45
2019:Q3 79 80.93 54.01
2019:Q4 86.87 76.18 53.58
2020:Q1 87.44 75.45 51.93
2020:Q2 87.98 95.12 74.54
2020:Q3 86.52 89.81 38.33
2020:Q4 89.52 79.64 45.56
2021:Q1 89.73 88.23 51.24
2021:Q2 93.5 89.83 46.85
2021:Q3 71.2 85.2 49.78
2021:Q4 81 87.23 50.5
2022:Q1 83.15 77.35 51.31

Application approval rates declined for midsized banks from 87 percent in the fourth quarter of 2021 to 77 percent in the first quarter of 2022. In contrast, approval rates for small banks steadily increased from 81 percent to 83 percent, while approval rates for large banks remain unchanged at 51 percent. The two most cited reasons for denying a loan were borrower financials and credit history.

Chart 11: Credit Quality Increases Across All Bank Sizes

Chart 11 shows diffusion indexes for credit quality of applicants. The diffusion indexes show the difference between the percent of banks reporting a decline in credit quality and those reporting improvement in credit quality. Net percent refers to the percent of banks that reported declining credit quality (“declined somewhat” or “declined substantially”) minus the percent of banks that reported improving credit quality (“improved somewhat” or “improved substantially”). It should be noted that small banks have total assets of $1 billion or less, midsized banks have total assets between $1 billion and $10 billion and large banks have total assets greater than $10 billion.

Notes: Chart 11 shows diffusion indexes for credit quality of applicants. The diffusion indexes show the difference between the percent of banks reporting a decline in credit quality and those reporting improvement in credit quality. Net percent refers to the percent of banks that reported declining credit quality (“declined somewhat” or “declined substantially”) minus the percent of banks that reported improving credit quality (“improved somewhat” or “improved substantially”).

Sources: FR 2028D, items 20 and 21.

About 9 percent of banks, on net, reported an increase in applicant credit quality. All three bank sizes reported a net increase, with midsized banks reporting the largest increase of 4 percent. Of respondents reporting a change in credit quality, whether an increase or decrease, 48 percent cited the debt-to-income level of commercial borrowers as a very important reason for the change. Other commonly cited reasons for a change were the liquidity positions of borrowers and recent business income growth.

Chart 12: Banks Tighten Credit Standards and Loan Terms

Chart 12 shows diffusion indexes for credit standards (red bar) and various loan terms. The diffusion indexes show the difference between the percent of banks reporting tightening terms and those reporting easing terms. Net percent refers to the percent of banks that reported having tightened (“tightened somewhat” or “tightened considerably”) minus the percent of banks that reported having eased (“eased somewhat” or “eased considerably”).

Note: Chart 12 shows diffusion indexes for credit standards (red bar) and various loan terms. The diffusion indexes show the difference between the percent of banks reporting tightening terms and those reporting easing terms. Net percent refers to the percent of banks that reported having tightened (“tightened somewhat” or “tightened considerably”) minus the percent of banks that reported having eased (“eased somewhat” or “eased considerably”).

Sources: FR 2028D, items 16, 17, 18 and 19.

About 12 percent of respondents reported a change in credit standards in the fourth quarter, up about 1 percent from the third quarter. Of banks indicating a change in credit standards, 3.1 percent, on net, reported tightening credit standards, compared with the 1.6 percent of respondents who reported easing credit standards in the prior quarter.

On net, respondents indicated that most loan terms tightened with the use of interest rate floors, premiums charged on riskier loans and level of interest rate floors. Respondents who reported tightening credit standards or loan terms in the fourth quarter cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems and reduced tolerance for risk. Respondents who reported easing credit standards or loan terms in the fourth quarter cited more aggressive competition from non-bank lenders and other banks as well as a less uncertain economic outlook.

Other contributors to the release include Nicholas Bloom, Dan Harbour, Thomas Hobson, Stefan Jacewitz, Emily Robinson, Trudy Vandever and Tony Walker.

PDFView PDF aggregate survey data

Excel SpreadsheetView Excel aggregate survey data

LEAVE A REPLY

Please enter your comment!
Please enter your name here