PayNet said that the Thomson Reuters PayNet Small Business Lending Index (SBLI) fell to 113 in January from a revised 115 in December. The index has been basically flat for the past year after growing 20% in 2010 and 16% in 2011.

This latest report confirms the economy’s failure to reach its full potential primarily as a result of small businesses’ reluctance to expand, PayNet said. Big businesses have fully recovered from the recession, while the small ones have not, as evidenced by the Index 20 points below its pre-recession peak. The perplexing aspect of this latest report is that small businesses have not yet taken full advantage of historically low interest rates and plentiful cash available to expand.

Small businesses remain a very safe investment right now compared to the bigger companies that issue non-investment grade bonds to sophisticated investors. Small company defaults hit an all-time low of 1.3% in 2012. This compares favorably with the big company default rate of 3% in 2012. PayNet’s credit ratings forecast slightly higher defaults in 2013 but still far below the big company default forecast of 3.7% by September 2013 recently published by Standard & Poor’s, the big rating agency.

“Playing it safe costs jobs,” said William Phelan, president of PayNet. “We’ve found that every one point in the Index equates to 42,000 jobs. Standing 20 points below the pre-recession peak means the economy is missing over 800,000 jobs because small business hasn’t yet fully recovered.”

PayNet’s Small Business Delinquency Index (SBDI) which measures the financial stress of companies with $1 million or less in credit outstanding by state and industry shows the fiscal discipline of small businesses. The delinquency index stands at just 1.32%.

The contrast between the regions with delinquency rates is varied. In Florida, overall delinquency is at 2.06% – much higher than the national average; Florida construction industry’s delinquency rate is even worse at 3.49%. Georgia based businesses demonstrate delinquency rates of 1.92%, while delinquency in Georgia’s construction industry is 3.60%. Meanwhile, only 0.91% of businesses are past due in Michigan, PayNet said.