Banks are forecasting stronger demand for business loans across the board this year, according to the Federal Reserve's quarterly Senior Loan Officer Opinion Survey released on Monday. Most lenders pointed to expectations of lower interest rates alongside rising spending or investment needs as the principal drivers of anticipated credit growth.
The survey shows a divergence by firm size in the fourth quarter: loan demand from large and medium-sized companies increased, while requests from small businesses held steady. In contrast to the pickup in business borrowing, household appetite for new loans cooled for most types assessed in the survey, with the sole exception that demand for credit card borrowing remained unchanged.
Respondents also reported that, although banks on balance tightened lending standards for businesses during the fourth quarter, they largely do not expect additional tightening this year. That shift removes a constraint that had been a brake on credit expansion over the prior period, according to the survey's findings.
On a sectoral tilt within corporate lending, the survey indicated that banks were, on net, more inclined to extend credit to firms with significant exposure to artificial intelligence. The net increase in willingness to lend to AI-exposed companies was highlighted alongside the broader expectation of rising business loan demand.
The Federal Reserve left its benchmark short-term policy rate unchanged last week in a 3.50%-3.75% range. In announcing that decision, policymakers signaled that a steady labor market and inflation that remains above their target mean rate reductions are unlikely to arrive soon. Officials had the senior loan officer survey available when they concluded their rate decision.
The survey paints a picture of a banking sector preparing for stronger corporate financing needs against a backdrop of restrained household borrowing and a central bank that, while holding rates steady now, signaled limited near-term easing.