Federal Reserve Says Only 28% of Bank Small Biz Loan Portfolios Deteriorating
February 9, 2026
Bob Coleman
Founder & Publisher
Federal Reserve Says Only 28% of Bank Small Biz Loan Portfolios Deteriorating
Fewer banks are entering 2026 with a clear concern: loan quality for small business borrowers is expected to deteriorate.
That was one of the key signals in the Federal Reserve’s Senior Loan Officer Opinion Survey, released February 2. The survey covers changes in lending standards, terms, and demand over the past three months, which generally correspond to the fourth quarter of 2025.
The 2026 lenders’ prediction for their small business loan portfolios:
- Improving — 14%
- Unchanged — 58%
- Deteriorating — 28%
The Fed defines small firms are those with annual sales of less than $50 million.
There is little sign of tightening lending standards for C&I loans to small firms:
- Tightened — 14%
- Unchanged — 86%
On the demand side, survey respondents reported stronger demand for C&I loans from large and middle-market firms. Demand from small firms, however, was basically unchanged on net. The contrast suggests that larger firms are still actively seeking financing, while smaller firms may be holding steady or facing constraints on their borrowing.
CRE lending showed a different pattern. Banks reported generally unchanged standards for CRE loans, alongside stronger demand. While underwriting is not loosening, interest in CRE financing appears to be increasing.
Beyond business lending, banks also reported expecting loan quality to improve for CRE loans, but to deteriorate for residential real estate (RRE) and most consumer loan categories. The outlook suggests uneven credit risk across sectors, with small business and household credit showing more stress.
Looking ahead, banks expect lending standards to remain unchanged across all loan categories as demand strengthens broadly.