Small Business Borrowing Slows in September, But Stronger Overall

Matters in the small business arena may not be back to “good” yet, but there are signs of progress, according to recent data on small business loans.

The Thomson Reuters/PayNet Small Business Lending Index, a measure of total U.S. small business financing volume, rose 14 percent in September, a more modest pace than the revised 18 percent growth from August. The silver lining is that it still marks the 14th consecutive month of double-digit increases in borrowing among smaller firms.

PayNet has tracked small business borrowing for years, and found that the volume of loans shrunk dramatically during 2008 and 2009, but now borrowing levels are actually close to 2005 (height of the economic boom) levels.

Of course, we are not seeing this volume growth translate into the significant economic growth that we’d hoped for, but it is a good sign that better times are coming as small businesses use those loans to expand their systems and hire new staff.

“We’re entering this slow-growth, low-risk phase of the business cycle,” PayNet founder Bill Phelan said in an interview as quoted in a Reuters article. “The last time, that phase lasted four to six quarters.”

So, that means up to another year-and-a-half of slow economic growth, but it’s to be expected with our current 9.1 percent unemployment rate. It is going to take some time to build up enough business to employ a substantial portion of those displaced workers.

More good signs are reflected in the falling delinquency rates for small business loans. PayNet found that accounts that were in severe delinquency, those loans unpaid after 90 days or more, fell to a record low of 0.41 percent of all loans in September, down from 0.46 percent the month before. And loans that were moderately delinquent, those late by 30 days or more, decreased to 1.63 percent from 1.67 percent.

These statistics indicate that the nation’s small businesses are more financially fit than they were in previous years. Additionally, it is our hope that as borrowing continues to increase, the economy will be able to stave off a double-dip recession.

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