Small Business Borrowing Is at a Critical Stage for the Economy…Stalled and Could Continue to Grow or Inflect Into Another Recession

The pace of lending to small businesses in the United States continues to be at a standstill, supporting the view that economic growth is headed for a further slowdown.  PayNet’s Small Business Lending Index takes the pulse of U.S. Small Business economy, which has proven to be a leading indicator of the GDP between 2-5months.   The index shows that small businesses are becoming increasingly concerned about the economy, targeting their investments to replace worn out equipment or to increase efficiency. PayNet's analysis shows that lending is up 10 percent from March 2011, but has declined 3% from February 2012.

According to PayNet president William Phelan, “What is surprising about this latest release is that entrepreneurs are shying away from investments.” notes William Phelan, president of PayNet, Inc.  “This is particularly striking given the lowest credit risk since 2005 and an outlook for low risk through year-end 2012.”

Borrowing - Reluctant to Expand
 
The Thomson Reuters/PayNet Small Business Lending Index (SBLI) seasonally adjusted originations declined 3% - going from 101.8 in February 2012 to 98.5 in March 2012. (February 2012 was revised upward from 98.3 to 101.8)

• Compared to the same month one year ago, the index is up 10%, while still up, March 2012 is the lowest year over year change since January 2011.
• The jump to 110 at year-end 2011 is proving to be an artificial spike from the stimulus temporary 100% accelerated depreciation tax advantages.
• The fall back to 98 confirms that small businesses are not yet ready to go out on a limb and aggressively expand.
• During March 2012, small business capital investment expanded 10% versus the prior year.
• While last year we saw the Index steadily grow, we have not yet seen 3 months of flat readings until now.

 Debts Paid - Financial Risk has Improved

• Has approached its natural lower limit below which it cannot fall much further.

 30 Day Delinquency

• 30 day delinquency decreased 8 bps from 1.47% in February 2012 to 1.39% in March 2012 - the lowest level since January 2005.
• Lenders experiencing a decrease in delinquency outnumbered lenders experiencing an increase by more than 2 to 1.
• Year over year, delinquency continues to decrease - down 37% (83 bps) vs. March 2011.

Credit Risk

• A look at risk by Federal Reserve District shows the large differences between these regions.
• Atlanta, Richmond, Dallas, and Boston stand as the highest risk districts for this current business cycle.
• The lowest risk regions are Minneapolis, Chicago, and Kansas City which are all below the national average. Minneapolis continues to be the lowest risk district as 30 Day Delinquency fell to only 51 basis points, well below the national average of 1.39%

Thomson Reuters/PayNet Small Business Lending Index

The Small Business Lending Index (SBLI) is based on new commercial loan and lease originations by major U.S. lenders in PayNet’s proprietary database.  This index measures the volume of loans to small businesses normalized to January 2005. Small businesses generally respond to changes in economic conditions more rapidly than do larger businesses, so this statistic is a leading indicator of the economy and predicts GDP between 2-5 months.

30 Day Delinquency
 
These statistics are important as they reflect the financial health of small businesses through their ability to repay existing obligations.

About PayNet

PayNet collects real-time loan information, such as originations and delinquencies, from more than 250 leading U.S. lenders.  The company's proprietary database -updated weekly - is the largest collections of commercial loans & leases, encompassing more than 19 million current and historic contracts worth more than $1 trillion. For more information visit paynetonline.com