Banks Report Weaker Small Business Loan Demand and Tighter Standards in Fed Survey

The Federal Reserve released its October 2026 Senior Loan Officer Opinion Survey on Nov. 2, 2026. The survey asks bank loan officers about lending practices over the past three months, which generally corresponds to the third quarter, and this round found weaker demand for small business loans and tighter standards for lending to smaller firms.

For founders and owners who borrow from banks, the findings reflect bank responses to a survey that respondents received on Sept. 21, 2026, with responses due by Oct. 5, 2026. The Coleman Report, which summarized the release on Nov. 3, supplies most of the percentages used here.

Demand Fell for Small Business Loans

Of the 59 banks that answered the small business questions, according to The Coleman Report, 15.3% reported weaker demand and 3.4% reported stronger demand. The remaining 81.4%, or 48 banks, reported no change. The net figure is a drop of 11.9 percentage points.

The Fed’s summary reports weaker net demand for commercial and industrial loans from firms of all sizes. The survey period covers the three months before the survey, which the Fed says generally corresponds to the third quarter of 2026.

Banks that cited weaker commercial and industrial demand gave reasons. Of the 12 banks that did, 91.7% pointed to lower customer investment in plant or equipment, and 83.3% pointed to borrowers shifting to other financing sources.

The Coleman Report says the shift to other financing included competing banks and nonbank lenders. The Fed’s summary describes the same movement toward bank and nonbank funding sources.

The release also covers other loan types. The Fed reports that standards tightened, on net, for every commercial real estate category, and that demand weakened in each one. Demand for residential real estate loans weakened, on balance, while demand for home equity lines of credit (HELOCs) was unchanged, and standards tightened for subprime mortgages.

Small Firm Definition
The Fed’s survey defines small firms for its commercial and industrial lending questions as those with annual sales under $50 million, according to the Fed’s October 2026 summary.

Standards Tightened for Smaller Firms

Banks tightened standards for commercial and industrial loans to firms with annual sales under $50 million. The Fed’s summary uses that threshold to define small firms. The Coleman Report gives the breakdown: 6.8% of banks, or four, tightened somewhat, one bank eased, and 91.5%, or 54 banks, reported no change.

Among the specific terms, 5.2% of banks tightened premiums on riskier loans, 5.1% tightened collateral requirements, and 8.6% increased the use of interest rate floors. On spreads over the cost of funds, 16.9% of banks narrowed them and 10.2% widened them.

The Fed’s summary says premiums on riskier loans were tightened for firms of all sizes, while most other queried terms were eased or basically unchanged. The Coleman Report says that among banks reporting tighter standards or terms, 80% considered a less favorable or more uncertain economic outlook important, and 66.7% cited worsening industry-specific problems.

Standards for large and middle-market businesses were basically unchanged, according to the Fed’s summary. For business credit intermediaries, The Coleman Report says 24% of banks tightened standards and 2% eased them. 14.3% reported stronger demand from these intermediaries, and 3.6% reported weaker demand.

How the Survey Works and Who Responded

The Fed’s survey page says the survey asks up to 80 large domestic banks and 24 U.S. branches and agencies of foreign banks about changes in their lending standards and terms, and about business and household demand for loans. The survey is generally conducted quarterly.

The Fed says the timing is set so results are available for its FOMC meetings in January or February, April or May, August, and October or November.

The Fed’s October 2026 summary reports responses from 61 domestic banks and 18 U.S. branches and agencies of foreign banks. Respondent banks received the survey on Sept. 21, 2026, and responses were due by Oct. 5, 2026.

The Fed’s summary says foreign bank branches and agencies reported basically unchanged standards for commercial and industrial loans and stronger demand.

The Coleman Report gives 59 responding banks for its small business figures, while the Fed’s October 2026 summary reports 61 domestic banks responding overall. Those 59 banks account for the four that tightened, the one that eased and the 54 that held steady. The Coleman Report also notes that the Fed’s commercial and industrial questions exclude financing for mergers and acquisitions, and that the Fed’s small-firm definition is broader than the group many SBA lenders serve.

Banks tightened standards for commercial and industrial loans to firms with annual sales under $50 million.

Timing and Next Steps as of Nov. 6

The Fed’s survey page was last updated on Nov. 2, 2026.

The Coleman Report published its summary on Nov. 3.

The Fed says the Build Your Package feature of its Data Download Program is being removed during the week of Nov. 9. Users can access data and expanded download options through the St. Louis Fed’s FRED database.