The federal financial regulatory agencies (including the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision and the National Credit Union Administration) and the Conference of State Bank Supervisors have issued an Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers (the “Statement”) to restate and elaborate upon their supervisory views on prudent lending to creditworthy small businesses. The Statement builds upon principles in existing guidance, including the November 2008 Interagency Statement on Meeting the Needs of Creditworthy Borrowers and the October 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts.

According to the Statement, a number of factors, including weakness in the broader economy, decreasing loan demand and higher levels of credit risk and delinquency, have prompted institutions to review their lending practices, tighten their underwriting standards, review their capacity to meet current and future credit demands and, in some cases, reduce lending. Some small businesses are experiencing difficulty in obtaining or renewing credit as a result. In light of the harmful economic effects of an excessive tightening of credit availability in a downturn, the regulators are working with industry and supervisory staff to ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to sound small business borrowers.

The Statement outlines supervisory expectations and underwriting and risk management considerations for small business lending. For example, an institution should:

  • Understand the long-term viability of the borrower’s business;
  • Focus on the strength of a borrower’s business plan, including its plan for the use and repayment of borrowed funds;
  • Analyze the competition and local market conditions affecting the borrower’s business and not base lending decisions solely on national market trends when local conditions may be more favorable;
  • Make loan decisions made based on the creditworthiness of the individual borrower, consistent with prudent management of credit concentrations; and
  • Have robust risk management practices to identify, measure, monitor and control credit risk in its lending activities.

See the Statement for further recommendations and insight on how bank examiners will review small business lending. The Statement is available from the Federal Reserve Board’s website at:

  • Judy Scheiderer and