Business loan demand softened last quarter, Fed survey shows

Business loan demand decreased last quarter, according to a Federal Reserve survey. For the first time in over a year, banks reported a weakening in demand for commercial loans. The main reasons cited were decreasing investment by customers in plant or equipment products and borrowers shifting to more attractive funding sources.

The last time the survey showed softening demand was in the second quarter of 2025, but banks did not attribute it to borrowers moving to other lenders at that time. Meanwhile, government data showed business spending on equipment surged by 20.9% annually, contributing to GDP growth. Bank loan officers reported little change in lending standards for commercial and industrial loans to large and mid-sized firms, but tighter standards for smaller firms.

They also noted that while they tightened lending requirements for riskier loans, most terms for C&I loans remained unchanged. The Fed's decision to keep short-term borrowing costs unchanged on October 27-28 was based on this survey and other data. Banks that tightened commercial lending standards cited a less favorable economic outlook and worsening industry-specific problems as the primary reasons.

There was also a significant uptick in demand for credit card borrowing, which has increased for four years.