Small Business Borrowing Moves Upward In May

Jun 27th, 2011 @ 10:09 AM by Debbie Dragon

A sign that the US economy might see some improvements in the coming months, US small business borrowing moved upward during the month of May. Compared to a year ago, lending took a surge to the highest level small business lending has seen since July of 2008.

According to an article on Reuters:

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to U.S. small businesses, rose 26 percent in May from a year earlier.

Small business lending is critical to the economy and with lending up this could be a good indicator that in just a few months the health of the US economy could become more stable. Lending to small businesses typically means new jobs will be created. 80% of new employment opportunities are attributed to small businesses and these loans could be an indicator of new jobs down the road.

In an effort to encourage small business lending and in hopes of giving the economy a much needed boost, the Federal Reserve has been keeping interest rates at rock bottom levels, hovering near zero percent. This small bit of good news may indicate that the low rates might finally be paying off.

“If small businesses are taking these kind of chances, taking risks, making long term investments, they are seeing some long-term opportunities on the horizon,” PayNet founder Bill Phelan said in an interview. “That’s got to be a big positive sign for the economy.”

According to an article on msnbc.msn.com other recent data indicated additional good news in relation to small business lending. Small business loan defaults appear to be decreasing and loan defaults for small businesses currently are at the lowest levels seen in five years.

The data showed that accounts 30 days or more overdue dropped during the month of May from 2.06% to just 1.95%. While those accounts that were behind more than 90 days and considered severely delinquent dropped from .63% in April to .59% in May. Finally, those accounts delinquent beyond 180 days and considered not payable fell from .77% in April to .75% in May.

The surge in new loans may be partially due to improving financial conditions at US banks. Banks with improving assets outshine those with falling assets four to one.