New Data on Small Business Lending: Outlook Is Positive

By Karen Axelton

Small business lending showed some positive signs in new data recently released by PayNet. The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of small business financing, increased 17 percent in April compared to the same time a year ago, Reuters reports.

While this was a decline of about 1 percent from the prior month, this was the ninth straight month that the Index had shown a double-digit increase. Those sustained gains are a good sign that small businesses are ready to grow as soon as customer demand for their products and services increases again, said PayNet president and founder William Phelan.

“The fact that small businesses are hanging in there is a good sign for the economy” Phelan told Reuters. “The data tells us [small businesses] are having more of a pause than a major contraction.”

While economic signals have been up and down recently, overall, increased small businesses is considered positive for the economy as a whole because small companies traditionally account for the majority of new hires. The Thomson Reuters/PayNet index has proven to be an accurate predictor of GDP trends about two to five months in advance.

More good news: In separate data released by PayNet recently, fewer companies are falling behind on existing loan payments. This indicates more businesses are ready to take on new loans if needed for growth.

Accounts behind by 30 days or more (considered moderately delinquent) fell to 2.06 percent in April—a typical level before the recession. Accounts 90 days or more behind (considered severely delinquent) fell to 0.64 percent in April from 0.67 percent in March. And accounts behind 180 days or more (in other words, in default and unlikely to ever be paid) dropeed to 0.76 percent of total receivables in April, from 0.77 percent in March.

Overall, these are promising signs. In recent years, small business lending had slowed to a crawl, first by banks tightening their requirements and later by small businesses reluctant to borrow because of concerns over the economy. If small businesses are showing the confidence to take on new debt, that’s a positive thing. Are you ready to take on a loan?

Image by Flickr user Steve Snodgrass (Creative Commons)

This entry was posted on Tuesday, June 14th, 2011 at 6:00 am and is filed under Capital Access, Raising Capital, Small Business, small business. You can follow any responses to this entry through the RSS 2.0 feed.


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