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Some 95% of bankers say the potential for SME business is at least equal to that of any other opportunity.
July 23
New data on lending trends seems to offer fresh evidence that many businesses are opting to hold on to their capital rather than invest in new plants or equipment.
Though small firms are borrowing far more than they did during the depths of the credit crisis, the pace of borrowing has slowed considerably of late, according to PayNet, a Skokie, Ill., firm that tracks lending and borrowing trends. Apart from an uptick in May, borrowing has declined in every month since the start of 2012, and William Phelan, PayNet's president, said he expects the trend to continue for the next few months as business owners await signs of a more robust recovery.
"What these results tell us is that businesses are being extremely cautious," Phelan said Wednesday following the release of PayNet's June report. "They are hunkering down."
The results would seem to contradict recent claims from bankers that they are,
PayNet's Small Business Lending Index uses data from roughly 300 U.S. lenders to measure the volume of loans of $1 million or less to small businesses. The higher above 100 the index reaches, the better the lending climate. The 8-year-old index peaked at 133 in mid-2007 and hit its low point two years later, at 66.
In June, the index stood at 98.5, down from 103.8 in May and 110.5 in December 2011.
The good news, Phelan says, is that businesses are not taking on more debt than they can handle. Thirty-day delinquencies have fallen in 29 straight months, to 1.11% of outstanding loans at June 30, and 90-day delinquencies of 0.28% are at their lowest levels since PayNet created the index in 2005.
Still, Phelan says that small-business borrowing is a leading indicator of where the economy is headed and that the latest results suggest that growth will slow the remainder of this year.
It further suggests that business failures will actually increase in 2013 for the first time since 2007.
Squabbling in Washington over extending the Bush-era tax cuts and other deficit-reduction measures is also weakening confidence.
Many economists predict that the Gross Domestic Product will fall by as much as 4% if Congress does not act to head off $110 billion in automatic spending cuts — often referred to as "a fiscal cliff" — that are scheduled to kick in at the end of the year.
"Businesses and banks need to be preparing for a slowdown," Phelan says.
"If I were the banks, I'd be stress-testing for the fiscal cliff right about now."
