Small Business Borrowing Hits High As Economy Grows
Jul 12th, 2017 @ 9:01 PM by Amber Nelson
Small business borrowing in the U.S. picked up in May rising to an 11-month high, according to new data, a good sign that demand is increasing and that small firms are feeling more confident about the economic environment.
The Thomson Reuters/PayNet Small Business Lending Index, a measure of small business loan volume, increased to 137 in May, a rise even from April’s upwardly revised index reading of 125.4. The last time the Index was this high was almost a year earlier in June 2016 when it registered 138.9.
While May’s index jump “is not enough to say ‘we’re off to the races,'” according to PayNet chief executive and founder Bill Phelan, at least “we’re not going into contraction mode.”
The rise in business borrowing was jump-started by the arts and entertainment markets, where small businesses increased borrowing by 11 percent compared with the previous year. Not all industries matched that pace, however. In fact, small firms in the transportation and health care sectors cut back on their business borrowing significantly, reducing by 14 percent and 13 percent respectively.
The small business borrowing index is a traditional bellwether of economic growth, typically corresponding with the direction of gross domestic product one to two quarters down the road. The reason for this is that small firms account for most of the hiring in the country, which in turn spurs growth.
During the first quarter of 2017, the U.S. economy grew at an annual pace of 1.4 percent. The new Index data is in sync with the latest projections from the Atlanta Federal Reserve that GDP will expand at 3 percent during the second quarter.
In a separate report from PayNet, small business loan delinquencies fell in May. The percentage of business loans that were more than 30 days late declined to 1.69 percent in May, down from 1.9 percent in April.
PayNet collects its data from over 325 top U.S. lenders.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.