Smart Borrower Blog

Small Business Lending Fell to 5-Month Low


Apr 9th, 2014 @ 11:13 PM by Amber Nelson


Unseasonably harsh weather restricted U.S. small businesses from borrowing more in February, according to a recent index, more an indication of a temporary economic pause rather than a major financial downturn.

The Thomson Reuters/PayNet Small Business Lending Index – a measure of total small business lending volume – dropped to a reading of 110.5 in February, a level not seen since last September, down from 116.5 in January. Smaller firms stop borrowing during hard times because they either scale back their operations or lending restrictions become tighter.

All the winter storms have dampened economic activity enough, including small business loan borrowing that economists believe that the next report of GDP will show a markedly slower pace in the 2014 first quarter. It is predicted that the annualized pace of GDP will fall below two percent for the first three months of this year, down from rate of 2.6 percent in the 2013 fourth quarter. According to the PayNet index website, “small businesses generally respond to changes in economic conditions more rapidly than larger businesses do” which is why the index in a good indicator of the country’s economic state two to five months down the road.

The Index does give cause for some optimism going forward, however. Compared with a year ago, the lending index is up 5 percent, and it had reached an almost seven-year high in December. Based on that information, the U.S. market fundamentals are slowly but surely strengthening and recovering. “Small business investment expansion signals moderate GDP growth,” said PayNet founder Bill Phelan in a statement.

Analysts forecast that small businesses will start financing more of their operations soon as other market signs point to healthier trends, like lower unemployment and better February retail sales.

PayNet creates its index from small business loan origination data from over 250 U.S. lenders.

 

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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