Small Business Lending Took Big Hit in September
Nov 7th, 2012 @ 12:23 PM by Amber Nelson
After rising slowly in July and August, lending to small U.S. businesses dropped to the lowest level in over a year, according to new data, a sign that does not bode well for economic growth in the next few months.
The Thomson Reuters/PayNet Small Business Lending Index fell 14 percent in September to 94.1, from August’s downwardly revised 108.9. Compared with the previous year, there was no change in lending.
The index is based on loan information like originations and delinquencies from roughly 250 U.S. lenders.
Additionally, the PayNet survey found that more small business borrowers are behind on their loans, 1.24 percent late by at least 30 days, an increase from 1.18 percent in August. It is the first monthly increase in delinquencies in over two years and points to increased financial distress for many companies.
Some of the delinquency rates did fall slightly, however. Those loans that were behind by at least 90 days fell to 0.23 percent from 0.25 and for that are considered in default, or at least 180 days late slipped to 0.32 percent from 0.33 percent. That could indicate the closing of some accounts because banks considered them unlikely to be paid.
“It’s unlikely you are going to get a lot of growth” from small businesses, PayNet founder Bill Phelan said as quoted in a Reuters article. “It’s not a positive report.”
And all this happened even as the Federal Reserve started buying up bonds I order to lower lending interest rates. So far the desire effect – more lending and more hiring – has not been achieved.
Experts say that the PayNet index is a barometer of economic growth for the next one to two quarters, and without any new reason for businesses to to borrow or banks to lend, the coming quarters will likely show continued pain in the small business lending sector.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.