January Rise in Small Business Borrowing Points to Stronger Economy
Mar 26th, 2014 @ 8:25 PM by Amber Nelson
While bad weather seemed to keep some parts of the economy from improving in January, the small business sector kept moving forward with more borrowing and falling loan delinquencies, according to recent data.
The Thomson Rueters/PayNet Small Business Lending Index showed a 4 percent increase in January to 117.2 compared with the previous year. Borrowing was down from December however, when it reached a seven-year high.
“It was unexciting growth but it was growth nonetheless,” PayNet founder Bill Phelan said in a statement. He also added, “January investment is especially promising in light of other weak financial releases in January, like the slowdown in manufacturing. Had small businesses not been as active, economic releases would have been even weaker in January.”
The index is a measure of the total loan volume to small firms and often indicates the state of the economy four to eight months down the road. As small businesses take out loans for equipment, inventory, and even real estate, the increased borrowing is often a precursor to an uptick in hiring as well.
Small businesses also did better at staying on top of their loan payments in January, according to a separate PayNet index. The Thomson Rueters/PayNet Small Business Delinquency Index showed that only 1.45 percent of all loans were late by 31 to 180 days. That’s down just slightly from 1.46 percent in December, but a far cry from the August 2009 peak of 4.73 percent. The current delinquency rate is only a sliver off the all-time record low of 1.44 percent from October 2012.
So while housing and manufacturing may have suffered in the early part of this year, with the help of upbeat small businesses, we may be able to look forward to some more positive upcoming economic quarters.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.