Big banks in recent months eased standards on small-business lending for the first time since late 2006, a Federal Reserve survey found, but customers of all sizes showed little appetite for loans with the economy slowing.

Banks eased lending standards and terms modestly from April to July in many categories of borrowing, particularly those where they faced competitive pressure from other banks and nonbank lenders, according to the Fed's survey of banks' senior loan officers.

The results, however, reflected only a gradual return toward conditions before the financial crisis, when banks tightened standards sharply.

Despite a loosening by large financial institutions, smaller banks remained more cautious about lending. "While the survey results suggest that lending conditions are beginning to ease, the improvement to date has been concentrated at large domestic banks," the Fed said.

The Fed's findings, based on responses from 57 domestic banks and 23 U.S. branches of foreign banks, are a positive sign for an economy still struggling from financial stresses that began three years ago. Loan officers at big banks said conditions also eased for consumer loans, such as prime mortgages, and most commercial loans, though commercial-mortgage standards tightened further.

But a lack of improvement in demand for loans among consumers and businesses indicates that even modestly looser standards — alongside historically low interest rates — aren't enough to spur stronger economic activity.

"When you're getting looser from the most severe credit crunch since the 1930s, it's all relative," says economist Paul Ashworth of Capital Economics. "The bigger problem at the moment is the lack of demand for credit."

The divide between lenders and borrowers is a big stumbling block to a recovery in the battered banking industry and the overall economy. In part, that is because the definition of a creditworthy borrower has changed. Small businesses that were deemed creditworthy just a few years ago may not be considered a good risk today, because banks are scrutinizing the finances of such borrowers more closely than before.

Indeed, bankers insist that they are booking all the good loans they can find.

"We and our competitors are beating each other up trying to get all the good business loans we can, but it's been a case of lack of demand or credit issues," says J. Williar Dunlaevy, chief executive of Legacy Bancorp Inc., a Pittsfield, Mass., based holding company that owns a community bank with about 20 branches in Massachusetts and New York.

Large corporations have found looser terms throughout the year as banks compete for their business. But smaller companies, firms with annual sales of less than $50 million, continue to cite the difficulty in obtaining loans as an obstacle to expanding activity and creating jobs.

And despite the most recent easing of terms, lending conditions remain far tighter than they were before the downturn, blocking out many small-business owners.

Surveys of small-business owners offer mixed signals about the effects of tight credit conditions. The National Small Business Association found in a survey released last month that four out of five small-business owners reported that their company "has been impacted by the credit crunch." That matched the high reached in July 2009, up from 55% in February 2008.

The latest survey by the National Federation of Independent Business, a separate trade group, last month found 91% of small-business owners reporting that their credit needs were met or they did not want to borrow, while only 4% cited financing as their top business problem. Uncertainty about the economy held back far more firms from investing: The percentage of business owners planning to make capital expenditures in the next few months fell one point to 18%, two percentage points above the 35-year record low. Only 5% said right now is a good time to expand facilities.

The Fed report released Monday is based on survey data, collected from July 13 to July 27, and was reviewed by policymakers ahead of their meeting last week. Central-bank officials, facing a slowing economy, decided to reinvest the proceeds of maturing mortgage-backed securities the Fed held in order to keep its balance sheet stable and avoid any tightening of financial conditions.

For small businesses, the improvement shown in the Fed survey was modest. About 14.5% of banks said they eased standards for small-business loans, while 5.5% tightened them. The other 80% remained unchanged.

Loan books shrank during the second quarter at many big U.S. banks, contributing to revenue declines at institutions such as Bank of America Corp. and Citigroup Inc.

Bank of America executive Kathie Sowa said the Charlotte, N.C., lender hadn't changed its underwriting standards for businesses with less than $50 million in revenues and that "demand continues to be weak and flat."

"What is driving some of the easing is that there are fewer creditworthy companies and more competition for those creditworthy borrowers," said Ms. Sowa, a commercial-products executive in global commercial banking.

Where some big banks say they are seeing signs of more demand is among their smallest customers. Large corporations, on the other hand, are "reluctant to pull the trigger on hiring and investing," said J.P. Morgan Chase & Co. spokesman Thomas Kelly.

J.P. Morgan Chase said its lending to businesses with less than $20 million in sales was up 37% in the first half of 2010 to $4.5 billion, up from $3.2 billion in the first half of 2009.

Of the $4.5 billion in new small-business loans, $160 million was to firms that were turned down once and received a "second look," Mr. Kelly said. The bank in those cases will experiment with the lending amounts or collateral to see if another solution is possible.

Wells Fargo & Co. and Bank of America also have such "second look" policies in place.

"I don't know if it's easing standards as much as it is looking at different ways" to make the loan, Mr. Kelly said.

— Dan Fitzpatrick and Emily Maltby contributed to this article.