On February 5, the Board of Governors of the Federal Reserve System, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Fund and the Conference of State Bank Supervisors (Banking Agencies) issued a joint statement regarding prudent lending to creditworthy small business owners (Statement).

In discussing the need for the Statement, the Banking Agencies noted that there has been a significant decline in loans outstanding to small businesses and farms and that such decline was attributable to a number of factors, including “weakness in the broader economy, decreasing loan demand, and higher levels of credit risk and delinquency.” It was also noted that the decline may have also been caused by a desire on the part of some financial institutions to strengthen their own capital positions and balance sheets.

The Statement encourages the banks and credit unions to engage in prudent small business lending after performing a comprehensive review of a borrower’s financial condition. Underwriting considerations should specifically include the strength of the borrower’s business plan and the borrower’s competition and local market conditions. Moreover, “to the maximum extent possible, loan decisions should be made based on the creditworthiness of the individual borrower, consistent with prudent management of credit concentrations.”

For more information, click here.