Small businesses cut borrowing for third month in a row

(Reuters) - Small businesses cut back on borrowing a third straight month in March, all but reversing a short-lived surge after the Federal Reserve launched its asset-buying program aimed at boosting growth and jobs.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to small U.S. companies, fell to 98.5 from an upwardly revised 105.4 in February, PayNet said on Wednesday. PayNet had initially reported the February figure at 101.3.

Business borrowing can point to trends in growth and employment, because when small firms take out loans they generally spend the money on new tools, factories and equipment. Such capital investment can be a prelude to new hiring.

Historically, PayNet’s lending index has correlated to overall economic growth one or two quarters in the future.

Fed policymakers are set to complete a two-day meeting on Wednesday afternoon, and are expected to hold to their current program of buying $85 billion a month of Treasuries and housing-backed bonds. They are also expected to renew a pledge to keep short-term rates at rock-bottom until unemployment drops to at least 6.5 percent, assuming inflation stays under control.

The Fed meeting comes against a backdrop of mixed economic signals, with consumer confidence and home prices rising, but manufacturing in the U.S. Midwest unexpectedly shrinking.

By contrast, PayNet’s small-business lending survey has been throwing off gloomy signals for months.

“They don’t have an appetite to take risk... they must have an opinion that the risks are too great,” PayNet founder Bill Phelan said in an interview.

Without that appetite, small businesses are not expanding quickly, and are not as apt to hire.

Small business borrowing in March failed to grow at all compared to last March, the index showed, and has given up nearly all its gains since the Fed launched its third round of quantitative easing last September.

And there are early signs that financial stress is building, with companies having more trouble paying back their loans.

Delinquencies of 31 to 180 days rose to 1.6 percent of all loans made in March, the first rise in more than three years, PayNet data showed.

Accounts overdue as a percentage of all loans rose as high as 4.73 percent in August 2009 before falling steadily to an all-time low of 1.58 percent in February.

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

(This story is corrected in headline and first paragraph to show decline was third, not fourth, month in a row)

Reporting by Ann Saphir; Editing by Chizu Nomiyama