Small Business Borrowing Drops In September

Bank lending to small US businesses took a marked plunge during the month of September, to the lowest level seen in the last 14 months, this according to a report issued just this week. The trend began to decline just as the US central bank launch its latest effort targeting monetary stimulus designed to encourage borrowing and spending.

The Thomas Reuters/PayNet Small Business Lending Index measures the overall volume of small business financing agreements, dropped to 94.1 from a revised 108.9 during the month of August. The number for August had already been revised from 109.9, and borrowing had remained flat from the same period a year earlier.

“It’s unlikely you are going to get a lot of growth” from small businesses, PayNet founder Bill Phelan said. “It’s not a positive report.” Small businesses almost always provide the majority of new job creation in the months immediately following a recession.

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PayNet’s lending index normally correlates to economic growth for a period of one to two quarters in the future.  The Federal Reserve had in mid-September released a new round of bond purchasing intended to lower borrowing costs and coax businesses back into spending. The end goal was to jumpstart hiring among the nation’s small businesses.

Additional Paynet data demonstrated that companies were finding themselves under increasing levels of financial stress, with a rise in the number of accounts overdue by 30 days or more, the first rise in delinquencies in more than two years. Longer term delinquent accounts eased however. PayNet collects and analyzes real-time lending data, such as it applies to originations and delinquencies, from more than 250 leading U.S. lenders.

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