Large and Small Business Borrowing Slumped in May
Jul 13th, 2016 @ 3:10 PM by Amber Nelson
Two separate reports found that U.S. businesses, both large and small, cut back on borrowing in May, a sign that the economy was already on rocky ground before the tumult of Brexit in June.
The Thomson Reuters/PayNet Small Business Lending Index fell to 128.6 in May from an upwardly revised 129.5 in April. The PayNet index is a consistent predictor of U.S. gross domestic product (GDP) one to two quarters down the road as small business borrowing indicated job creation and growth.
Since that is the case, the economy is likely to experience choppier waters soon. “You are going to see tepid GDP growth … (and) the odds of a recession occurring are higher,” said Bill Phelan, president of PayNet. Phelan said that small businesses in particular will struggle with the rising strength of the U.S. dollar in the wake of the U.K.’s decision to leave the European Union.
Large American businesses also shied away from taking out more loans in May, according to the Equipment Leasing and Finance Association (ELFA). In a survey of 25 of some of the nation’s largest companies like Bank of America Corp., Caterpillar Inc. and Verizon Communications Inc., total new borrowing fell to $6.8 billion, down 7 percent from April and the year before. Credit approvals fell to 76.5 percent of all business loan applications, down from 78.2 percent in April.
Several factors kept big firms from applying for more capital, said ELFA Chief Executive Ralph Petta, including global economic and political concerns, the chaos of the U.S. presidential elections and domestic financial struggles.
Similarly, ELFA’s affiliate, the Equipment Leasing & Finance Foundation, reported that its confidence index fell in June to 52.3 from 55.1 in May, with anything over 50 indicating a positive outlook by companies on the economy.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.