While small business lending remains tight, commercial real estate has already moved into easing. The Federal Reserve's January 2026 Senior Loan Officer Opinion Survey shows CRE lending standards crossing into net easing for the first time since 2022, with nonfarm nonresidential and multifamily categories both registering negative net tightening. For CRE borrowers, the direction has changed.
CRE Lending Snapshot
- Nonfarm Nonresidential Standards: -3.6% net tightening (net easing)
- Multifamily Standards: -5.5% net tightening (net easing)
- Construction & Land Dev Standards: +1.8% net tightening (near neutral)
- CRE Demand (Nonfarm Nonres): +10.7% net stronger
- Prime Rate: 6.75%
Two of three major CRE categories have crossed into net easing, the first time since 2022.
Source: Federal Reserve Board, SLOOS January 2026 (Q4 2025 activity); H.15 Selected Interest Rates
Key Takeaways
- CRE is leading the credit cycle turn while C&I lending, particularly for small firms, remains in net tightening territory. The divergence signals an uneven credit recovery.
- Nonfarm nonresidential standards hit -3.6% and multifamily hit -5.5% in Q1 2026, the first net easing readings since 2022, down from peaks above 65% in mid-2023.
- Construction lending standards dropped to 1.8%, a 72-point decline from the Q2 2023 peak of 73.8%, though they have not yet crossed into easing.
- CRE demand has turned positive: construction at +8.9% and nonfarm nonresidential at +10.7%, the first positive demand readings since 2022.
- The speed of the CRE credit normalization, from above 65% net tightening to net easing in roughly 10 quarters, reflects the asset-backed repricing mechanism that distinguishes CRE from unsecured C&I credit.
The Data
After peaking above 65% net tightening in 2023, two of three CRE categories have now crossed into easing territory.
The full quarterly progression, including construction (which has not yet crossed into easing), is below.
| Quarter | Construction & Land Dev | Nonfarm Nonresidential | Multifamily |
|---|---|---|---|
| Q2 2023 (peak) | 73.8% | 66.7% | 64.5% |
| Q4 2023 | 64.9% | 67.2% | 65.5% |
| Q2 2024 | 24.6% | 30.6% | 33.9% |
| Q4 2024 | 14.8% | 16.4% | 19.7% |
| Q2 2025 | 11.1% | 10.9% | 1.6% |
| Q4 2025 | 6.6% | 3.3% | 1.6% |
| Q1 2026 | 1.8% | -3.6% | -5.5% |
The divergence between categories accelerated from Q1 2025 onward, as multifamily and nonfarm nonresidential dropped toward and then through zero while construction held in low single digits.
Why CRE Moved First
CRE lending is asset-backed. That distinction matters when credit conditions are repricing. Unlike C&I lending, where creditworthiness depends on cash flow projections and business credit profiles, CRE credit decisions are anchored to observable collateral values and cap rates. When those signals shift, lenders can reprice with concrete reference points rather than subjective assessments of borrower risk.
The repricing signals arrived. CRE valuations absorbed more than two years of rate increases, and by late 2025, cap rates in major categories had stabilized. Multifamily led the easing because its underlying fundamentals, occupancy rates and rent growth, gave lenders a tangible basis for confidence. A property with stable rental income and a known cap rate is easier to underwrite than a small business with uncertain revenue. That clarity is why CRE crossed the easing threshold while C&I lending, particularly for small firms, remains net-tightening.
C&I Has Not Followed
The credit cycle is turning, but not uniformly across lending categories. Small-firm C&I standards remain at 8.9% net tightening, and large/mid-market firm standards sit at 5.3%. Demand tells a split story: large-firm demand surged to +16.1%, while small-firm demand registered flat at 0.0%. For a full analysis of the C&I divergence between small and large firm lending, see our coverage of lending standards for C&I borrowers. The key point here: CRE has crossed the line that C&I has not. Historically, CRE easing has preceded broader C&I easing by one to three quarters.
What This Means for Borrowers
CRE Borrowers
For firms pursuing commercial real estate financing, the shift from tightening to easing changes the negotiating dynamic. More banks loosening standards means more competitive term sheets, improving odds of securing favorable loan-to-value ratios and pricing. Refinancing opportunities are expanding as lenders who held firm during 2023 and 2024 begin competing for deal flow again. Borrowers with stabilized assets and strong debt service coverage ratios are in the strongest position to benefit. The demand data confirms the market is responding: construction demand turned positive at +8.9% and nonfarm nonresidential at +10.7%, the first positive readings since 2022.
Non-CRE Borrowers
For small businesses outside commercial real estate, the signal is encouraging but not yet actionable. C&I standards for small firms have declined from their peaks, but they remain in tightening territory. The CRE shift suggests the broader credit cycle is turning, which historically precedes C&I easing by one to three quarters. But "the direction has changed" is not the same as "conditions have improved." Firms dependent on C&I credit should monitor the April 2026 SLOOS release closely. Until small-firm standards cross zero, the spread environment for non-CRE borrowers remains constrained.
Conclusion
The credit cycle has not reset. But the direction has changed, and commercial real estate is leading the turn. Banks are no longer tightening CRE standards at the pace seen in 2023, and in two of three categories, conditions have already shifted into net easing. For CRE borrowers, this means improving access, stabilizing terms, and the first real negotiating leverage since the tightening cycle began. For small businesses in other sectors, the signal is different: the turn has started, but it has not reached them yet. What matters now is direction, not level.
What to Watch
- April 2026 SLOOS release: Covers Q1 2026 lending activity. Will confirm whether CRE easing accelerated or stalled, and whether C&I standards followed the CRE trajectory.
- FOMC meeting, April 28-29: Rate decisions affect CRE borrowing costs directly via Prime Rate and SOFR-linked products.
- CRE cap rate and pricing trends: Continued cap rate stabilization reinforces the lending easing. A cap rate reversal would pressure standards back toward tightening.
- SBA 504 activity: SBA 504 loans, used heavily for owner-occupied CRE, will signal whether the SLOOS easing translates into government-backed program volume.