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Khalique Rehman, who runs My Pain Clinic in McDonough, Ga., got a $1.8 million loan this month from Atlanta-based Private Bank of Buckhead. "I was surprised because everyone says it would be so difficult," says the 46-year-old physician, who plans to double the space of his eight-employee practice and hire another doctor and possibly a nurse. "I am really happy."
American banks increased credit in July, August, and September, the first consecutive gains since October 2008, according to Federal Reserve data released on Oct. 15. Commercial and industrial loans rose in July and August after dropping 25 percent, the data show. Banks eased lending standards in the second quarter for the first time since the credit crisis began, the Fed reported on Aug. 16.
Some types of lending, including commercial real estate and credit cards, continue to lag. There's also the possibility of a continued decline in U.S. home prices and problems with improper documentation of foreclosures, according to Mark Vitner, a senior economist at Wells Fargo (WFC). "We are likely to see bank lending increase, but at a very modest pace," he says. "The recovery will be very slow. We have a long road back."
At least there's a road. "Lending is no longer collapsing," says Neal Soss, chief economist at Credit Suisse (CS) in New York. "When you're in a hole, the first thing is to stop digging deeper." Fed officials cited the improvement at their Sept. 21 meeting, according to minutes released Oct. 12. "There were some signs that credit conditions had begun to improve for smaller firms," the minutes said.
Some borrowers still don't see much change. Brian Rist, who runs a Fort Myers (Fla.)-based hurricane-protection company, says he's disappointed that a loan he's negotiating may require him to put up family assets as collateral, even though his business is profitable and has $13 million in revenue. "Banks are trying to fend off as much risk as they can," he says. "We have a 16-year track record and have never been late on any notes. I have no choice" but to guarantee the loan personally.
Fed data show that most of the credit growth comes from banks buying securities, including mortgage-backed bonds, rather than making loans, as demand is still weak. Perhaps 2011 will be better. Bank of America (BC) said on Oct. 14 it plans to hire 1,000 employees in the next year to focus on companies with sales of $3 million or less.
The bottom line: Tentative signs of a thaw in bank lending are appearing. Yet commercial real estate and credit card lending still lag behind.
Matthews is a reporter for Bloomberg News.
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