PayNet: U.S. Small Business Lending Stalls in February 2012
PayNet reported that the pace of lending to small businesses appears to be at a standstill and virtually unchanged for the second straight month. The Thomson Reuters/PayNet Small Business Lending Index edged up to 98.3 in February from 98.2 a month earlier.
According to PayNet president William Phelan, the April release data tells us small business expansion is faltering. Small businesses are uninspired. With this report we expect GDP to grow but it won’t be big growth.
Small businesses expanded with big investments after the 2000 recession. This time small businesses are stuck at the same level of investment as 2005. New borrowings have remained at 98.3 for the past two months. So small businesses have no real momentum that indicates growing demand for their goods and services.
While the latest release is a 14% change over the prior year, the pace of these double-digit increases is falling. 2011 saw some months jump 27% over the prior year and the average jump in 2011 was 17%. Credit applications stand at about the same level since the recession ended so demand for credit remains tepid.
According to PayNet, the lack of expansion by small businesses is especially surprising given historically low credit risks. Improvements in risk are reaching natural limits. Loan delinquencies fell last month to 1.46% past due. That is lower than 2005. Severe loan delinquencies fell further too. They are now at .38% which is also lower than 2005.
Business defaults will end 2012 at 2.4%, which is the same as where it ended in 2011. We are seeing a rise in risk in sectors like agriculture, health care and general. The industries with improving risks are the ones hurt most by the recession – transportation, construction and retail.
The Thomson Reuters/PayNet Small Business Lending Index is based on new commercial loan and lease originations by major U.S. lenders in PayNet’s proprietary database. This index measures the volume of loans to small businesses normalized to January 2005. Small businesses generally respond to changes in economic conditions more rapidly than do larger businesses, so this statistic is a leading indicator of the economy and predicts GDP between two to five months, PayNet said.