Small-business credit conditions continued to improve in the second quarter, thanks to gains in personal income, retail sales and employment, according to a Experian/Moody's Analytics Small Business Credit Index report released on Tuesday.

The small business credit index rose 2.8 points from the previous quarter to a record 111.7. That compares to a baseline of 100 for the first quarter of 2011. Experian and Moody's evaluate conditions at firms with 5 to 99 employees by compiling repayment information from banks and other credit providers, along with macroeconomic data.

"The economy has held up better than anticipated so far this year in the face of large tax increases and government spending cuts, which has supported improved small-business borrowing and credit quality," Moody's chief economist Mark Zandi said in the report. "While there remain several hurdles to even better conditions, including the coming political battles over the Treasury debt ceiling and federal government funding and the prospects for higher interest rates, small businesses should get over these hurdles reasonably well."

As economic conditions brightened this quarter, small businesses paid down more delinquent debt. Among smaller firms of all sizes, 10.2% share of total credit outstanding was delinquent, down 2.4 percentage points from a year earlier.
"During this period of modest growth, small businesses have improved their credit profile by decreasing delinquent debt and meeting financial obligations in a more timely fashion," Experian's senior business consultant Joel Pruis said in the report. "Businesses of all sizes need to maintain a strong credit profile, as it enables them to more easily secure the credit or funding they need to grow their enterprise."

While overall credit quality improved for small businesses across the board, firms in some regions seem to be making bigger gains. Delinquency rates were significantly lower than the national average for small businesses in Idaho, Wyoming, Arizona and Utah, according to the report.

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