The pace of investment by small businesses appears to be increasing. A study released Monday by PayNet, a data analytics firm making small business lending more profitable, shows that lending increased 12% month over month, which is the largest increase seen since June 2009.

The Thomson Reuters/PayNet Small Business Lending Index (SBLI) increased from 96.6 in April 2012 to 108.4 in May 2012. Compared to the same month one year ago, the index is up 18% versus May 2011.
 
“The good news is this release reverses 4 consecutive monthly declines, so small businesses are not completely shutting down,” says William Phelan, president of PayNet, Inc. “This latest release, however, falls short of a trend for future investment projects, and therefore strong economic growth. It represents only one step in the direction of strong growth for small business and sounder economic footing.”

If small businesses do decide to keep their foot on the gas, they are very well positioned to speed up the economy. Their financial condition is stronger than it has been in years. Incredibly, moderate loan delinquencies fell again to a new record low of 1.18%. This means that of every $100 of loans due, only $1.18 are late payments. Moderate loan delinquencies are down 40% from last year. This latest release is the 34th consecutive monthly decrease in loan delinquencies. For nearly three years, small businesses have been repairing and strengthening their balance sheets.

"Low financial risk is drawing small businesses out of their cautious stance to consider long-term expansion investments. Small businesses must feel some increased confidence since they are putting some of their cash to work rather than hoarding it as they have been for the last 4 months," noted Phelan.” I doubt this means the small business owner is going to indiscriminately throw caution to the wind and start investing wildly. Rather, we expect to see steady and cautious expansion by small businesses, if we can avoid external shocks such as another credit crisis. With risk at all-time lows, small businesses may see now as a good time to stretch for some added reward by investing in long-term expansion."

PayNet bases its index on new commercial loans and leases granted to small businesses by the lenders in its database.

Origination Stats:

• The Thomson Reuters/PayNet Small Business Lending Index (SBLI) seasonally adjusted originations increased 12% - going from a revised 96.6 in April 2012 to 108.4 in May 2012.
• The 12% month over month increase is the largest seen since June 2009.
• Compared to the same month one year ago, the index is up 18% versus May 2011.
• Excluding the seasonality adjustment, the index would have been 99.5% in May 2012 - up 8% over May 2011 and up 3% month over month. The driver is that the data showed an increase in $ originated month over month while the seasonal adjustment expected a decrease in originations. This inversion drove the seasonally adjusted index higher.

30 Day Delinquency:

• 30 day delinquency decreased 10 bps from 1.28% in April 2012 to 1.18% in May 2012 - continuing to set record lows and the largest monthly decline in delinquency since May 2011.
• Lenders experiencing a decrease in delinquency outnumbered lenders experiencing an increase by more than 3 to 1.
• Year over year, delinquency continues to decrease - down 40% (78 bps) vs. May 2011.
• 30 day delinquency has been on the decline for over 2 years - 28 consecutive months of decreases.