Small biz loan demand up, Federal Reserve says

NEW YORK (CNNMoney) -- A growing portion of the nation's banks saw a spike in demand for loans to smaller firms late last year, according to the latest Federal Reserve figures.

Despite the uptick, nearly all banks surveyed kept their credit standards or loan terms the same.

The survey, which used responses from senior loan officers at 56 U.S. banks, contained information about firms with annual revenues of $50 million or less. Although that range covers many mid-sized businesses, it also included small businesses.

The survey showed that 26% of banks experienced "moderately stronger" demand for commercial and industrial loans from small firms during the fourth quarter. That percentage was the highest all year, rising from 8% the previous quarter. But the updated data does not reveal a total rise in demand, as 62% of banks reported no change.

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The "data are consistent with a modest recovery and an uptick in business confidence," said Robert Litan, vice president of research and policy at the Kauffman Foundation.

Whether that can be sustained is open to debate, he added.

The survey also showed the vast majority of banks kept credit tight, as 94% reported that credit standards for small firms "remained basically unchanged." A similar proportion of banks said the maximum size of credit lines and requirements on collateral also stayed the same.

The majority of banks did not see an increase in demand, because the uncertainty in the economy has made small businesses reluctant to take out loans, explained Raymond J. Keating, chief economist at the Small Business & Entrepreneurship Council.

"Many small businesses are either struggling to get by or simply keeping their powder dry when it comes to capital investments, hiring and borrowing," he said.

Ami Kassar, CEO of Multifunding, said the Federal Reserve figures are meaningless when it comes to gauging small-business lending, because most of the firms that the loan officers are talking about are not small.

Most small businesses earn a yearly revenue of $1 million or less, explained Kassar, whose company helps small firms acquire loans. "It's an insult to the vast majority of business owners and entrepreneurs who are sweating it out there and trying to get loans to keep their businesses going."