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PayNet: Small Business Lending Cools in April for 4th Consecutive Month

June 01, 2012, 08:00 AM
Filed Under: Economy

Reuters reported that lending to small business in the United States eased in April for the fourth month in a row as companies were hesitant to bulk up their operations, boding poorly for stronger economic growth. According to the report, the Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to U.S. small businesses, fell to 94.1 from 96.0 in March, PayNet said.

Compared with a year earlier borrowing rose 7 percent, the lowest 12-month growth rate since July 2010. The lending index is correlated with changes in overall economic growth several months in advance.

"These businesses are cautious," said PayNet founder Bill Phelan. "They're holding back on new investments and expansions in their businesses, and that's really a result of the view of uncertainty in the marketplace."

Accounts in moderate delinquency, or those behind by 30 days or more, fell to 1.29 percent from 1.39 percent in March. That's far below the high of 4.42 percent reached in May 2009. Accounts 90 days or more behind in payments, or in severe delinquency, edged down to 0.35 percent from 0.36 percent. Accounts behind 180 days or more, considered to be in default and unlikely ever to be paid, eased to 0.43 percent from 0.48 percent.

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

This latest release of small business trends takes another step in the direction of bear territory for the US economy. This release of the Index is the fourth consecutive monthly decline. The only similar time is early 2009 when the Index fell five months in a row. Clearly the trend in investment activity by millions of small business signals a negative short-term outlook for the future of the economy. This bodes poorly for Gross Domestic Product, which our loan
index leads by 2-5 months.

The report outlines the following highlights:

  • Small businesses are investing at a rate 6% lower than in 2005.
  • The Index is lower than it began the year at 110.5.
  • This four month slide almost matches Jan - May 2009 which slid five months in a row.

PayNet’s data takes the pulse of U.S. Small Business economy and has proven to be a leading economic indicator of the GDP between 2-5 months. Chicago-based PayNet, Inc. maintains the largest repository of historical lease and loan payment information based on the U.S. small-business economy. PayNet's data provides a unique window into the world of small business lending/credit trends compiled from their “real-time” proprietary database. PayNet tracks 23 segments including construction, transportation, agriculture, computers, healthcare, etc. Hundreds of small business lenders across the nation are members of PayNet who report key data about small business loans in their portfolio to PayNet on a monthly basis.

The small business economy has been slowly coming out of the recession, but the landscape is still very challenging for small businesses. Data driven analysis lowers the cost of doing business for credit grantors and may enable additional credit to flow more freely to small businesses, thus helping American commerce grow faster.

Read Related Article: "Lack of Confidence and Uncertainty Present Challenges to Continued Expansion"

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