In brief

• Business loan demand in the USA fell in the third quarter, for the first time in over a year, according to the Fed's quarterly survey.
• Banks point to smaller client investment in equipment and borrowers shifting to cheaper sources of financing.
• Lending standards for small businesses were tightened, while changes for large and middle-market firms were small.

Decline in loan demand in the third quarter

The Federal Reserve's quarterly survey of senior loan officers shows that business demand for bank loans weakened. The survey covered 61 U.S. banks and 18 U.S. branches of foreign banks. This is the first such decline in over a year. (Business loan demand softened last quarter, Fed survey shows – marketscreener.com) (Fed Survey: Business Loan Demand Drops in Q3 as Firms Shift to Cheaper Funding - News and Statistics - IndexBox – indexbox.io) (Business loan demand softened last quarter, Fed survey shows – Investing.com)

The previous weakening of demand for commercial loans was recorded in the second quarter of 2025. However, banks at that time did not indicate that clients were moving to other lenders. (Business loan demand softened last quarter, Fed survey shows - SRN News – srnnews.com)

Main causes according to banks

As the main reasons for weaker demand, banks cited a decline in clients' investment in fixed assets and equipment, and borrowers shifting to more attractive sources of financing, both bank and non-bank.

Some entrepreneurs may therefore have continued to invest, but sought cheaper financing outside traditional bank lending.

Equipment investment despite weaker demand

According to government data, business spending on equipment rose in the previous quarter at an annualized rate of 20.9%. This made a bigger contribution to GDP growth than in any quarter in six years.

The decline in loan demand therefore does not automatically mean weaker investment. Firms may have financed purchases from their own funds or from other sources.

Lending terms

Loan officers reported small changes in standards for commercial and industrial loans to large and middle-market firms. For small firms, standards were tightened. (Fed SLOOS: Over Q3, banks reported that lending standards for commercial and industrial (C&I) loans to large and middle-market firms were basically unchanged, while standards tightened for C&I loans … – newsquawk.com)

Smaller companies may therefore find it harder to obtain a bank loan than large entities.

Context in the mortgage market

The same survey showed weaker demand across all seven categories of home-purchase mortgages, with changes in standards for most of them being small. For subprime loans, standards were tightened. (Surveyed Banks Report Weaker Demand Across All Seven Mortgage Categories | TokenPost – tokenpost.com) (Fed Survey: Mortgage Demand Weakens, CRE Lending Tightens – wrenews.com)

How the survey is conducted

The Fed survey is published quarterly and is based on assessments by lenders. The result reflects banks' decisions regarding lending conditions, not direct data on firms' debt levels.