Small Business Lending Becoming More Ubiquitous

Over the past few years, many small businesses have likely found, to their dismay, that their access to credit from traditional lenders had all but dried up. However, that trend has finally begun to reverse itself in the last several months, and it continued to do so in July.

The latest data suggests that there was a huge uptick in small business lending two months ago, according to the latest Thomson Reuters/PayNet Small Business Lending Index. The overall level rose to a reading of 128.5, up significantly from 120 in June, and now stands at the highest level seen since March 2007. Bill Phelan, the founder of PayNet, noted that this likely means small business owners are largely moving to do more than simply get new equipment when their old products might have needed replacing, and instead are pouring more money into other aspects of their companies.

“A solid third quarter is taking shape here, for small businesses and for the U.S. economy,” Phelan said. “I think they are seeing demand right now. This has got to be showing some strength in orders.”

What does this mean?
Further, it should be noted that when companies significantly boost their borrowing efforts above normal levels, that likely indicates that they’re planning on hiring in the future, the report said. Past data has shown that when borrowing goes up, so too does job creation.

It likely also means that lenders are still warming to the idea of extending credit to small businesses in particular, and there seems to be good reason for the growing optimism among these financial institutions, the report said. The latest PayNet data shows that delinquency on small business loans is hovering at extremely low rates, and has been for some time. July’s rate of late payments actually ticked up very slightly – to 1.55 percent of all outstanding balances, up from 1.53 percent a month earlier – but is now well below the all-time high of 4.73 percent seen in August 2009, as the recession was just starting to wind down. The record low, however, was set last October, at just 1.44 percent.

Owners who want to make sure their companies are in an advantageous position when it comes to qualifying for such financing might want to consider trimming other expenses first. By finding more affordable small business insurance – like liability insurance, for instance – they might be able to reduce those costs by thousands of dollars annually.