Smart Borrower Blog

Small Business Lending Hits Seven-and-a-Half Year High


Nov 5th, 2014 @ 8:22 PM by Amber Nelson


September saw small U.S. businesses increase their borrowing to the highest level since before the financial crash, according to the Thomson Reuters/PayNet Small Business Lending Index , and a separate report says lenders expect to make even more such loans in 2015.

The Index rose to a reading of 125.4, up 6 percent from 118.5 in August, the highest rank since March 2007. The index is up 13 percent from a year ago. The Small Business Lending Index is generally a good predictor of the U.S. GDP path 3 to 5 months in the future.

“Wringing fear from the investor base has proven formidable, as U.S. small businesses and lenders remain towards the cautious side of the risk taking scale,” said William Phelan, president of PayNet, speaking of concerns about financial weakness in Europe, China and Japan, but he noted that at home most economic indicators have been fairly positive. The fact that small businesses are willing to take on more debt is a sign that “the domestic part of the equation is firming up. That’s a positive.”

And banks foresee growth in small business lending in the near future as well. The Federal Reserve’s quarterly survey of bank senior loan officers found that 69 percent of banks expect a “moderate increase” in retail small business loans during the next year. And 3 percent were so optimistic that feel a “substantial increase” in small business loans is coming. Some 26.5 percent think that their lending will stay the same and only 1.5 percent believe they will see less small business loans occur in the coming year.

Most of those banks reported that they eased their lending standards for loans somewhat in the third quarter with a “modest percentage” reporting an easing of lending requirements specifically on commercial and industrial loans. Demand for business loans increased among large and middle-sized firms but remained fairly constant among small firms, the Fed reported.

An increase in small business loans is often a good indicator of future job creation and overall improvement to the economy.

 

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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