Small-Business Borrowing Rose in May, Signals Growth Ahead

Tuesday, 02 Jul 2013 07:39 AM

 

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Small U.S. businesses increased borrowing for a second month in May, pointing to growth ahead for an economy still struggling to pull free from a recession that ended four years ago.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to small U.S. companies, rose to 115.1 from a downwardly revised 108.1 in April, PayNet said on Tuesday.

From a year earlier, the index jumped 9 percent, putting it within striking distance of the five-year high of 116 reached in December. The April figure was originally reported at 110.5.

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Because small companies typically take out loans to buy new tools, factories and equipment, an increase in borrowing can be a prelude to new hiring. Historically, PayNet's lending index has correlated to overall economic growth one or two quarters in the future.

"Small businesses are avoiding stall, and it means that there's a slow expansion that's in place," PayNet President Bill Phelan said in an interview. After a decline in the first quarter, the fresh signs of growth in borrowing mark good news, he said.

The Federal Reserve is buying $85 billion in Treasurys and mortgage-backed securities each month in an effort to boost growth and jobs.

Fed Chairman Ben Bernanke last month said that if the economy continues to grow modestly, the central bank could begin easing off that monetary gas pedal later this year.

Meanwhile, financial stress at small businesses, already at historic lows, is easing further, with more companies paying back their loans on time.

Delinquencies of 31 to 180 days fell to an all-time low of 1.49 percent of all loans made in May from 1.54 percent in April, according to the Thomson Reuters/PayNet Small Business Delinquency Index.

Accounts overdue as a percentage of all loans have fallen steadily since rising as high as 4.73 percent in August 2009.

PayNet collects real-time loan information, such as originations and delinquencies, from more than 250 leading U.S. lenders.

Editor's Note: Save, shop and invest like an insider! Our experts lead the way each month in The Franklin Prosperity Report. Click here to learn more.

© 2014 Thomson/Reuters. All rights reserved.

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