Small business lending climbed to an all-time high in May, according to the latest Strategic Insights Report from PayNet, the leading provider of small business credit data and analysis. The Thomson Reuters / PayNet Small Business Lending Index (SBLI) jumped 9.4 points to 152.7 in May and is up more than 10 percent on the year. The SBLI 3-month moving average also rose in May and is 11 percent above its year-ago level.

“Times are unusually good for Main Street businesses and their lenders now,” said William Phelan, president of PayNet, Inc. “The combination of record-high credit demand and low credit risk for main street businesses signals that higher profitability is in store for commercial lenders — especially those with technology systems currently in place that can minimize costs.”

Small business lending saw broad-based growth in May, as nearly every state saw lending increase on an annual basis. Of the 10 largest states, growth was led by Texas (12.9 percent year over year) and North Carolina (12.3 percent Y/Y), which both climbed to record highs. The majority of industries also experienced growth in May, led by Transportation & Warehousing (15 percent Y/Y), Mining (9.4 percent Y/Y), and Construction (7.5 percent Y/Y). Notably, all four of the industries that declined on a year-over-year basis are in the service sector, including Information (9.3 percent Y/Y) and Accommodation & Food Services (8.1 percent Y/Y). However, Health Care posted its third consecutive monthly gain (4.1 percent Y/Y) after a steady two-year decline.

Small business financial stress edged down in May for the first time in nine months. The Thomson Reuters / PayNet Small Business Delinquency Index (SBDI) 31–90 Days Past Due moderated to 1.41 percent in May, but remains six basis points above its year-ago level. Eight of the ten largest states experienced fewer delinquencies relative to April, though only two saw delinquencies fall on an annual basis: Pennsylvania (-6bp Y/Y) and California (-3bp Y/Y). Similarly, while half of the major industries saw delinquencies fall or remain unchanged on a monthly basis, most saw delinquencies rise on an annual basis, led by Health Care (+10bp Y/Y).

The PayNet Small Business Default Index (SBDFI) fell two basis points to 1.82 percent in May and is down seven basis points compared to a year ago, its sharpest annual decline since late 2014. On an annual basis, more than half of the major industries saw defaults fall in May, led by Mining (-183bp Y/Y), Transportation & Warehousing (-133bp Y/Y), and Professional Services (-32bp Y/Y). Regionally, defaults fell in eight of the 10 largest states on a monthly basis, but were up in half of the largest states relative to year-ago levels. Notably, Texas (-36bp Y/Y) has seen defaults fall by double-digits in each of the last nine months.

“Financial stress among small businesses remains low, especially for this stage of the business cycle,” Phelan added. “While it’s possible that credit risk may begin to creep up if the Fed continues raising rates, main street lending should continue to fill the sails of the U.S. economy.”