Small Business Borrowing Increase as Firms Ramp Up for Holidays
Nov 4th, 2015 @ 9:28 AM by Amber Nelson
U.S. small business owners stepped up their borrowing in September, according to the Thomson Reuters/PayNet Small Business Lending Index released this week, an indication that they anticipate a jump in consumer spending for the holiday season.
The index, set to a baseline of 100 in January 2005, rose to a reading of 140.4 in September, up 4 percent from August’s downwardly revised 135.6 and up 11 percent from the year before.
The increase was most prominent in the Transportation and Warehousing sector with a 17 percent increase over September 2014. Construction borrowing also rose significantly by 11 percent as did Accommodation & Food Services by 10 percent.
“Consumer sectors are still the driver which means they have more discretionary income to spend,” said William Phelan, president of PayNet. “The consumer driven expansion is intact and will provide a positive lift to U.S. GDP in the next quarter.”
The index readings are closely tied to the direction of GDP, leading it by two to five months. And while last quarter it fell to just 1.5 percent, this uptick in business borrowing it a good sign that the economy will be expanding by year’s end. And 2 percent seems to be the tipping point for the Federal Reserve to raise interest rates in December, a move that would show the Fed’s confidence in the direction of the economy.
In a separate measure, the small business loan delinquency rate inched up in September to 1.45 percent of all loans, from 1.44 percent in August, but was down 7 percent from the previous year.
“The concern that small business may be overheating remains low risk with this added borrowing at a measured pace,” Phelan saided. “Rising investment driven by the consumer combined with low credit risk means U.S. GDP will benefit decent conditions among small businesses.”
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.