Smart Borrower Blog

Small Businesses Cut Back on Borrowing As Fed Promises More Purchases


May 1st, 2013 @ 10:54 PM by Amber Nelson


U.S. Small businesses are borrowing less, according to a leading Index, a disappointing sign for the economy in the next few months.

The Thomson Reuters/PayNet Small Business Lending Index, a measure of total financing to small U.S. Firms, fell to 98.5 in March from 105.4 in February. Compared with March 2012, the index is unchanged. March marks the third straight month of borrowing declines.

The PayNet index is a general predictor of economic growth three to six months in the future. When businesses are taking out more loans it usually means they are expanding, buying real estate and equipment and often hiring new employees.

The momentum currently building the housing market is apparently not spilling over into the small business sector. “They don’t have an appetite to take risk… they must have an opinion that the risks are too great,” PayNet founder Bill Phelan said in a Reuters article.

The Federal Open Market Committee, a branch of the Federal Reserve confirmed the PayNet index’s overall message: confidence in the economy is lacking. At the end of their two-day meeting this week, the FOMC decided to continue to bolster markets and push down interest rates by extending its monthly purchases of $85 billion worth of Treasury securities.

“Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated,” the FOMC wrote in a statement. “To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.”

That means interest rates will remain around historical lows for some time to come. Now if only small business owners felt that borrowing on those low interest rates was worth the risk…

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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