Banks Tightened Small-Firm and Property Lending, Fed Survey Finds

In short: banks reported tighter credit for small businesses and for every kind of commercial property loan over the third quarter of 2026, according to the Federal Reserve's October loan officer survey. Credit for households barely moved, except at the riskier end.

What the survey measures

The Senior Loan Officer Opinion Survey on Bank Lending Practices asks banks whether their standards, terms and demand for loans have changed over the past three months. The Fed published the October 2026 survey on 2 November. It covers a period the Fed says "generally corresponds to the third quarter of 2026."

Banks received the questionnaire on 21 September and answers were due by 5 October. Responses came from 61 domestic banks and 18 US branches and agencies of foreign banks. Unless it says otherwise, the Fed's summary describes the domestic banks.

The survey records opinions about direction, not loan volumes or prices. Its unit is the net percentage: the share of banks that tightened minus the share that eased. The Fed describes a net figure from 0 to 5 percent as "basically unchanged." A finding of tightening therefore means more banks tightened than eased. It does not say how far any single bank moved.

Business loans: small firms tightened, larger firms did not

For commercial and industrial (C&I) loans, banks reported that standards for large and middle-market firms were basically unchanged, "while standards tightened for C&I loans to small firms." The survey defines small firms as those with annual sales below $50 million.

The Fed's Table 1 shows how narrow the margin was.

*Our calculation from the Fed's bank counts: banks tightening minus banks easing, as a share of banks answering. Domestic respondents.

The small-firm figure sits just above the 5 percent line. The table also shows where the tightening came from. None of the 21 large banks that answered tightened small-firm standards; all four tighteners were among the 38 other banks. The Fed defines large banks here as those with domestic assets of $100 billion or more as of 30 June 2026.

Loan terms moved less than standards. Banks eased or left unchanged most terms for firms of every size. The exceptions were tighter premiums on riskier loans for all firms, and tighter collateral requirements and interest rate floors for small firms.

The reasons banks cited most often were "a less favorable or more uncertain economic outlook and a worsening of industry-specific problems." Demand for C&I loans was weaker for firms of all sizes. Banks attributed that to lower customer investment in plant or equipment, and to borrowers shifting to more attractive bank or nonbank funding. Foreign banks reported the opposite on demand: standards basically unchanged and demand stronger.

Commercial real estate tightened in every category

Banks reported tighter standards and weaker demand for all three commercial real estate (CRE) categories.

*Our calculation from the Fed's bank counts. Domestic respondents.

Construction and land development showed the largest net tightening of the three. The direction is also a reversal. In the July 2026 survey, covering the second quarter, banks "generally reported easier standards and basically unchanged demand" for CRE loans. Foreign banks also tightened CRE standards in October, though they reported stronger demand.

Households: mostly unchanged, tighter at the edges

Mortgage standards were basically unchanged for most of the seven home-purchase categories the survey covers. Banks eased standards for jumbo loans, both qualified mortgage (QM) and non-QM, and tightened them for subprime mortgages. Home equity line standards were unchanged. Demand weakened across all residential real estate categories, while demand for home equity lines held steady.

Consumer credit followed the same pattern. Standards and most terms were basically unchanged for credit cards, auto loans and other consumer loans. The exceptions all concerned riskier borrowers or exposure limits:

• Credit scores: less lending to borrowers who do not meet credit-scoring thresholds, for cards and other consumer loans
• Credit limits: tighter limits on credit card accounts
• Auto loans: a higher minimum required credit score

Demand rose for credit cards, fell for auto loans, and was unchanged for other consumer loans. The household picture is not one of broad tightening: the changes sat at the margin, where scores are low.

Who gets a credit card

A set of special questions asked how likely banks were to approve credit card applications compared with a year earlier. Banks said they were more likely to approve super-prime and prime applicants, less likely to approve subprime applicants, and about as likely to approve near-prime ones. The Fed gives FICO scores of 580 to 619 as an example of subprime, and says small banks drove the subprime trend.

Asked why card demand was stronger over the year, banks most often cited "changes in customers' spending needs in response to price changes for goods and services they face." Approval is the step before the rules that govern an open account; what a card issuer must then disclose is set out in Regulation Z.

Loans to nonbank lenders tightened too

A second set of special questions covered bank loans to nondepository financial institutions (NDFIs). The categories were mortgage credit intermediaries, business credit intermediaries, private equity funds, consumer credit intermediaries and other NDFIs.

Banks reported tightening standards for all of them over the quarter. The reasons cited most often were the economic outlook and "a deterioration in the financial strength of NDFI borrowers." Terms were tightened or left unchanged. Demand strengthened from business credit intermediaries and private equity funds, and was unchanged from the rest.

Several of those categories are themselves lenders to households and businesses. Bank standards on loans to them sit one step upstream of the credit they extend, which is why the Fed asks about them separately.

What changed since July

The July survey described a calmer second quarter for business borrowers. Banks reported basically unchanged C&I standards for firms of all sizes and easier CRE standards. On the household side, July showed mixed mortgage standards and tighter credit card standards; in October, card standards were basically unchanged.

In July's special questions, banks also said their standards were at the tighter end of their historical range for every loan category except C&I loans. October's tightening for small firms and property therefore came from a starting point that banks already described as tight for property loans.

What the survey does not tell you

It measures how many banks changed course, not how much credit was extended or at what price. Small shifts in a few banks' answers can move a category across the 5 percent line, as the small-firm result shows. The headline describes domestic banks; foreign branches often reported something different. And the survey reports reasons as banks state them, not as measured causes.

For borrowers, the useful reading is narrow: in the third quarter, small firms and property developers met tighter bank standards, and most households did not. More on how credit is priced and disclosed is in Lending & Credit.