May 2, 2011 / 9:05 AM / in 7 years

Exclusive: Small business borrowing cools: PayNet

CHICAGO (Reuters) - Borrowing by small businesses rose in March, data released by PayNet Inc on Monday showed, but at a slower pace than in recent months as the U.S. recovery cools.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to U.S. small businesses, rose 12 percent in March from a year earlier, PayNet said. The index rose 17 percent in February.

But separate data also released on Monday show small business loan defaults at their lowest in four and a half years.

“Small business balance sheets are pristine right now,” William Phelan, PayNet’s president and founder, said in an interview. “There’s a lot of potential out there (for growth), but we need to see the demand come back to ignite it.”

Borrowing by small businesses is seen as harbinger for the broader economy because they account for as much as 80 percent of new hiring. The loans PayNet tracks are typically used to buy or update plants and equipment.

Consumer spending rose in March, data on Friday showed, but prices also rose, leaving the spending that drives 70 percent of the economy up just 0.2 percent after adjusting for inflation.

Manufacturing in the Midwest grew slower than expected in April, a separate report on Friday showed.

Separate data released by PayNet on Monday showed that fewer companies are falling behind on their existing loan payments.

Accounts in moderate delinquency, or those behind by 30 days or more, fell in March to 2.15 percent from 2.42 percent in February, PayNet said.

That’s the lowest level since September 2006, and means businesses are in better shape to take on new loans once they see demand return, Phelan said.

Accounts 90 days or more behind in payment, or in severe delinquency, fell to 0.64 percent in March from 0.70 percent in February.

Accounts behind 180 days or more, or in default and unlikely to ever get paid, edged up to 0.78 percent of total receivables in March, from 0.77 percent in February, according to PayNet, which provides risk-management tools to the commercial lending industry.

The Thomson Reuters/PayNet small business lending index is correlated to developments in the overall economy, with changes in the index preceding changes in the overall U.S. economy by two to five months.

PayNet collects real-time loan information, such as originations and delinquencies, from more than 250 leading U.S. capital equipment lenders.

More on Thomson Reuters/PayNet Small Business Lending Index is available here

Editing by Chizu Nomiyama

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