Eyeing End-Of-Summer Small Biz Finance

As summer winds down, the market is in flux. Demand for sunscreen is falling – and demand for pumpkin spice lattes is up. The seasonal swing is taking hold of the small business segment in the U.S., too. Swaths of new data and analysis have poured out in the last few weeks, offering insight into the performance of the SME market in mid-to-late summer. PYMNTS takes a look at the numbers to find what’s going up and what’s falling down in small business finance.

What’s Down

Borrowing Rates

The Thomson Reuters/PayNet Small Business Lending Index dropped in its most recent report, published Wednesday (Sept. 2). The index declined to 145.2 from its 146.4 score in June, signaling an overall drop in small business borrowing for the month. Not to worry, though – according to reports, June set a record in small business lending, and the July index is still a 13 percent increase from the same month in 2014.

A closer look at the numbers by Biz2Credit’s July Small Business Lending Index reveals where small business borrowing went downhill. According to its most recent data, Biz2Credit found a decline in small bank lending to small businesses in July by 10 basis points, marking the ninth month in a row that small banks have reduced their SME loan approval rates. Credit unions also dropped their small business lending practices, also with an approval rate drop of 10 basis points.

Employment

Small business employment rates have also been dropping. New figures from the Intuit Small Business Employment Index found that SME employment dropped by 5,000 jobs in August, representing a 0.02 percent monthly drop, and an annual decline of 0.3 percent.

This week, similar results were published by the Paychex | IHS Small Business Jobs Index, which dropped by 0.17 percent between July and August, reports said – a 0.51 percent decline from the same period last year. “The pace of employment growth has been mixed so far in 2015,” the report concluded, “increasing in the first quarter and decreasing in the second.”

What’s Up

With the bad news out of the way, we now turn our attention to positive growth in the small business segment.

Borrowing Rates

While analysts saw a general decline in small business borrowing for July, there are areas in SME finance that saw a boost. The Biz2Credit report found that big banks have continued to increase their approval rates to small business loan applicants, finding that 22.4 percent of applications were approved in July. Analysts view these figures as ones likely to continue. “The trend clearly shows that Big Banks are getting more aggressive in the small business lending space and are starting to invest money in digitizing their loan offerings,” the report found. Institutional lenders are also seeing gains in small business lending, with the segment seeing a 0.3 percent increase in loan approval rates in July. Year-over-year, the figure represents an 8.67 percent increase in institutional lending rates to SMEs.

[bctt tweet=”While analysts saw a general decline in small business borrowing for July, there are areas in SME finance that saw a boost.”]

And, while the Thomson Reuters/PayNet Small Business Lending Index report showed a general decline in SME lending in July, analysts noted that July’s data was up 13 percent from the same month a year prior. According to PayNet founder Bill Phelan, while foreign markets drop, “we’ve got this small business economy anchoring the U.S. economy.”

Paychecks

Employment at small businesses may have declined in August, but researchers still found reason to celebrate. Amid declining job numbers, employees at SMEs worked more hours last month (at an average of 110.1 hours in August), and employers bumped up their paycheck numbers to these workers. According to research, monthly pay for SME employees increased by 0.30 percent, representing an $8 boost. The average monthly compensation for these workers hit $2,838. Thomson Reuters and PayNet also found increased revenue for SMEs in July, for which the latest data is available.

[bctt tweet=”Employment at small business may have declined in August, but researchers still found reason to celebrate.”]

What’s Stagnant

Two things are stagnant, according to the most recent data: alternative lending rates to small businesses (according to Biz2Credit), and federal interest rates – both of which are likely to progress in opposite directions, analysts say.

Alternative lending to small businesses has seen lackluster performance so far this year, and analysts say the industry is further challenged by an increase in traditional bank lending.

The Federal Reserve, however, is expected to increase interest rates after keeping them steady at record-lows since 2008 – though no one is quite sure when, exactly, that rate hike will occur – or how it would impact small business finances.