Aug 2 (Reuters) - Small U.S. businesses reduced borrowing in June, raising the question of whether the recovery will pick up enough for the Federal Reserve to move ahead with a plan to end its massive bond-buying stimulus by mid-2014.
The Thomson Reuters/PayNet Small Business Lending Index, which measures the volume of financing to small companies, fell to 104.8 from a downwardly revised 113.7 in May, PayNet said on Friday. The May figure was first reported as 115.1.
The index rose 4 percent from a year earlier, putting it on higher ground at the quarter's end than at the end of the first quarter. Historically, PayNet's lending index has correlated to overall economic growth one or two quarters in the future.
"It does mean modest GDP growth in the next five months," PayNet President Bill Phelan said in an interview.
"Modest" was the word the Fed used earlier this week to describe U.S. economic growth in the first half, when the economy grew at an average pace of 1.4 percent.
Last month, Fed officials forecast the economy would grow about 2.3 percent to 2.6 percent this year. But to meet that goal, the economy would need to grow at a comparatively torrid 3.1 percent in the second half.
Fed Chairman Ben Bernanke said in June that the Fed expected to be able to reduce its $85 billion bond-buying program later this year and end it in the middle of next year "if subsequent data remain broadly aligned with our current expectations for the economy."
A burst of strength in the economy as the third quarter began, including gains in factory activity, and a drop in applications for jobless benefits, reinforced the view the Fed will start reducing the stimulus later this year. [ID: nL1N0G20M3]
Because small companies typically take out loans to buy new tools, factories and equipment, a decline in borrowing might signal slower hiring ahead. Still, Phelan said, the longer-run trend is positive, if not particularly strong.
Low financial stress at small businesses, with more of them paying back loans on time, is also encouraging, Phelan said.
Delinquencies of 31 to 180 days remained in June at an all-time low of 1.48 percent of all loans made, according to the Thomson Reuters/PayNet Small Business Delinquency Index.
Accounts overdue as a percentage of all loans have fallen steadily since rising as high as 4.73 percent in August 2009.
PayNet collects real-time loan information such as originations and delinquencies from more than 250 leading U.S. lenders. (Reporting by Ann Saphir; Editing by Leslie Adler and Andre Grenon)