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May 14, 2025

The Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) revealed tighter bank lending standards for businesses of all sizes during the first quarter along with weaker business loan demand. For households, banks reported little change to slightly tighter standards while loan demand was mixed.

For loans to businesses, nearly 20% of banks tightened their lending standards for commercial and industrial (C&I) loans to large and middle market firms (e.g., businesses with annual revenue of $50 million or more). That compares with 6% in the final quarter of last year. For loans to small businesses (annual sales of under $50 million), 16% of banks tightened standards vs 11% in the previous quarter.

As demand weakened. In the first quarter, 20% of banks reported weaker C&I demand for businesses of all sizes, a deterioration from the fourth quarter. Declining investment in plant or equipment and decreased financing needs for mergers or acquisitions were the reasons cited for weaker demand. Uncertainty related to tariffs was likely another reason. Responses for the survey were due by April 11, 2025.

Banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories, with 8% of banks reporting tighter standards; that is up from 7% in the prior quarter. On the demand side, 3% reported weaker demand versus 5% in the fourth quarter. The reason cited for weaker demand was higher interest rates.

A special question was asked about office loans. For maximum loan size, 43% of banks tightened their standards. The reasons for tightening policies on office loans included a less favorable or more uncertain outlook for property prices, market rents, vacancy rates, mortgage delinquency rates and reduced risk tolerance.

For loans to households, lending standards for residential real estate (RRE) loans were little changed as demand weakened. Two percent of banks tightened their standards versus 1% that eased standards in the prior quarter. On the demand side, 8% of banks reported weaker demand for RRE. The spring selling season could be a bust; the recent backup in mortgage rates is keeping homebuyers on the sidelines.

Among consumer loan categories, 6% of banks reported tightening standards for credit cards though auto loans were little changed, with just 2% reporting tighter standards. Demand for credit cards weakened in the first quarter while auto loan demand was unchanged. Credit card demand is likely to remain constrained this year given the high percentage of those who are seriously delinquent, 90 days or more, on their payments.

According to the New York Federal Reserve Bank, 7% were seriously delinquent on credit card balances in the first quarter, the highest since the first quarter of 2011, -two years after the Great Recession. Household balance sheets are increasingly stretched and likely to become further strained as tariff-induced inflation hits consumers in the coming months.