New small business lending increased by 1.8 percent in the third quarter compared to the same period in 2023 and 6.9 percent compared to the previous quarter, according to the Federal Reserve Bank of Kansas City’s “Small Business Lending Survey” published at the end of 2024.
Outstanding loan balances increased by 1.3 percent when compared to the same period in 2023 but decreased slightly by 0.6 percent when compared to the previous quarter. Interest rates on new term loans and variable rate lines of credit decreased.
With over $69 billion in small business loans reported, the 177 survey respondents reported credit standards tightened for the twelfth consecutive quarter and credit quality declined for the tenth consecutive quarter. Loan demand decreased for the tenth consecutive quarter, though loan application approval rates increased among small banks.
When compared to third quarter 2023, small business loan balances increased by 1.3 percent, C&I loans decreased by 2.6 percent, and total loans decreased by 1.0 percent. Large and midsized banks drove the year-over-year increase in small business loans, while small banks reported decreases. Quarter-over-quarter, all loan categories decreased slightly.
Quarter-over-quarter, total new small business loan balances increased by 6.9 percent, including a 16.5 percent increase in new credit lines and a 1.3 percent increase in new term loans. Year-over-year, total new loans increased by 1.8 percent, driven by a 6.2 percent increase in new credit lines and partially offset by a 1.0 percent decrease in new term loans. The overall growth in new loans was comprised of increases at both large and small banks, while midsized banks reported decreases.
Usage of total small business credit lines decreased slightly, ending an upward trend in usage that lasted for five straight quarters. Although small businesses are utilizing 46 percent of fixed-rate lines of credit compared to 32 percent of variable-rate lines of credit, variable-rate lines make up a larger portion of credit lines issued by banks. Respondents indicated that variable rate lines comprise about 89 percent of total credit line usage.
Median interest rates decreased for all new term loans in third quarter 2024. Variable rates offered at urban banks remained the highest, while the lowest remained fixed rates offered at urban banks. The largest change was a 41-basis point decrease in variable rates offered at rural banks