January 2, 2012 / 10:02 AM / 8 years ago

Small business borrowing at near 4-year high in November

WASHINGTON (Reuters) - Borrowing by small U.S. businesses hit its highest level in nearly four years in November, pointing to underlying strength in the economy.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to small businesses, surged 10.2 points to 106.4, the highest level since February 2008. The index was up 18 percent from November 2010.

“We are entering a new phase of the business cycle,” said PayNet founder Bill Phelan. “Businesses are betting on the future with increased investment spending.”

PayNet tracks borrowing by millions of small U.S. businesses and provides risk-management tools to the commercial lending industry.

The survey adds to other data suggesting the economy gathered momentum in the final three months of 2011, which should help it to better handle the headwinds from the debt crisis in Europe and fights over budget policy in Washington.

Fourth-quarter economic growth is seen exceeding a 3 percent annual pace, an acceleration from 1.8 percent in the third quarter.

The Thomson Reuters/PayNet small business lending index has some leading correlation with gross domestic product, preceding changes in the overall economy by two to five months.

“It (surge in borrowing) tells us there will be growth for at least the next quarter,” said Phelan. “There is underlying strength in the economy that is not being reported elsewhere.”

While Europe’s fiscal troubles appear not to have affected the flow of credit to small businesses, they pose a big threat to the economy’s growth prospects in 2012. Added to that is the uncertainty over fiscal policy in the United States.

The survey also found that small businesses are getting better at managing their debt, with loan delinquencies continuing to drop.

Accounts in moderate delinquency, or those behind by 30 days or more, dropped five basis points to 1.50 percent in November. Those behind 90 days or more in payments, or in severe delinquency, slipped 1 basis point to 0.39 percent.

Accounts 180 days or more, or in default and unlikely ever to be paid, fell six basis points to 0.58 percent.

“We are now in this new phase of growth and low risk. The key question is how long is this phase going to last?” said Phelan.

Reporting By Lucia Mutikani; Editing by Neil Stempleman

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