PayNet: U.S. Small Business Lending Takes a Dive in June
The pace of borrowing by small businesses took a sharp turn downward last month, indicating showing slow economic growth will continue for at least the next quarter. The Thomson Reuters/PayNet Small Business Lending Index stands at 98.5 in June, down from 103.8 the prior month in May. The index was restated lower in May due to borrowing falling faster than expected, falling 5% from the prior month. Compared to the same month one year ago, the index rose just 2% over 2011.
According to PayNet president William Phelan, “Businesses and bankers should prepare for more slowdown. Now might be the time to consider adding capital. Credit supply is high and interest rates are incredibly low.” Phelan added “banks should strengthen credit quality to prepare for further slowdown. Stress Tests show that a full blown recession means small business failures could triple.”
Small businesses continue to improve their balance sheets.
Small businesses are still out of the market for investing in property plant and equipment.
At the same time banks are stretching to put earning assets on the books.
For the first time since 2007, business failures are forecast to rise 16% in 2013.
The Small Business Lending Index (SBLI) 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 2-5 months.