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Small business lending loosening up

Posted by: Brian O'Connell on July 7, 2011 Source: Kauffman Foundation

Call it a tale of two surveys – and a decent clue on the direction of small business lending for healthcare entrepreneurs.

Two headlines frame the story; one on May 2, 2011, and the other on June 30, 2011.

“Small Business Borrowing Cools,” Reuters, May 2, 2011

“Small Business Borrowing Surges,” Reuters: June 30, 2011

So what happened within 60 days that helped paint a more positive picture on the small business lending front?

The Thomson Reuters/PayNet Small Business Lending Index has the answers -- or at least some of them, anyway.

That index had risen by 17 percent, and then by 12 percent in March, which led PayNet to issue a report categorizing the rate of small business lending back on May 2 as sluggish, but with a caveat: Small companies were showing signs of stabilization where it counts, and that may have set the stage for faster loan growth by the end of June.

"Small business balance sheets are pristine right now," explained William Phelan, PayNet's president and founder, in an interview with Reuters on May 2. "There's a lot of potential out there (for growth), but we need to see the demand come back to ignite it."

Phelan also noted another key stage-setter in the small business lending sector – loan delinquencies were headed downward in early May, another early sign that entrepreneurs could expect looser credit practices going forward. The percentage of small company owners who were delinquent on their loans by 30 days or more declined from 2.42 percent in February to 2.15 percent in March.

Fast forward to June 30, 2011, when the PayNet data revealed that small business lending had begun to spike upward. The percentage was substantial – small business loans rose by a whopping 26 percent from May 2010 to May 2011, with the added piece of good news that the PayNet Small Business Lending Index was at its highest level since July 2008 – just two months before all Hell broke loose on the U.S. economic front.

Delinquencies – or the lack of them – were at the heart of the index upgrade. Continuing a favorable downward trend, small business delinquencies fell to 1.95 percent in May, down from 2.06 percent in April, PayNet says.

No doubt, the loosening of small business credit is good news to healthcare business owners. But loose credit only works if entrepreneurs actually leverage it. So taking a new loan doesn’t just help startup owners, it helps everybody.

"If small businesses are taking these kind of chances, taking risks, making long-term investments, they are seeing some long-term opportunities on the horizon," Phelan said in an interview. "That's got to be a big positive sign for the economy."

PayNet says that the small business lending index is very much a forward-looking measurement tool – it “runs ahead” of the rest of the economy by two to five months.

So if you’ve been stuck in a financial rut, and could use some extra capital to gain some headwind leading into a stronger recovery, the message from PayNet is clear: Call your banker. Increasingly, the money is there if you want it.

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