PayNet: July Small Business Lending Signals Caution
The latest measures of the small business economy signal business should prepare now for forthcoming economic weakness. Early stages of financial stress are emerging across all businesses. The Thomson Reuters/PayNet Small Business Lending Index showed a small 3% monthly gain in July over the prior month, and it grew 14% over the same month last year. However, the trends are toward slower economic growth as results for five of the last seven months reveal no growth or an actual decline in monthly business investment by U.S. small businesses.
Rising financial hardship for small businesses means a higher probability of a sharp decline for the U.S. economy.
Moderate loan delinquencies, those 30 days or more past due, rose four basis points to 1.20%. This is the first rise in loan delinquencies since January 2010, or 30 months. Small businesses as a group found it more difficult to pay their bills last month, and even the highest quality small businesses as a group found it slightly harder to pay their bills.
“Businesses and especially banks should assess their blind spots,” said William Phelan, president of PayNet. “Leading indicators show that retail and transportation sectors remain the most vulnerable to a downturn, and stress testing reveals a 300% jump in the business failure rate going forward under worst case scenarios.”