Banks finally lending more to small biz

NEW YORK (CNNMoney.com) -- The credit market may finally be starting to thaw out, according to a report from the Federal Reserve.

The Fed said Monday that banks relaxed their lending standards over the last quarter, with the most improvement at big banks.

While most banks said demand for business and consumer loans was unchanged, large banks -- those with assets greater than $20 billion -- eased their lending conditions.

The Fed's quarterly survey of senior bank loan officers assesses supply and demand for bank loans to businesses and consumers. The past few reports showed that banks had been easing lending standards for large corporations.

But the July survey showed the first sign that credit was loosening for small businesses, a sector especially hard-hit during the recession.

Over the last quarter, small companies -- those with sales of less than $50 million a year -- found loan standards relaxing for the first time since 2006.

Throughout the downturn small businesses have complained of a constant struggle to obtain loans, while big companies rack up cash on their balance sheets.

Last month, Fed Chairman Ben Bernanke said $40 billion worth of loans to small businesses have evaporated in the past two years. He said correcting the problem should be "front and center among our current policy challenges."

In his speech, Bernanke said banks "should do all they can to meet the needs of creditworthy borrowers. Doing so is good for the borrower, good for the lender, and good for our economy."

Consumer loans: Lending generally eased for consumers, but credit card loans were the exception, the Fed report said.

Changes in standards for credit card loans varied widely. Big banks -- and a few other card issuers -- generally eased up, while others said they tightened conditions.

In addition, a small fraction of banks said they had reduced the size of credit lines for existing customers. Still, the report said, "that fraction has decreased noticeably over the past few surveys."