Borrowing by small businesses in the U.S. is up by 7 percent from a year ago, a sign of steadily improving business conditions, according to data from a monthly private survey released on Tuesday (March 31).
The Thomson Reuters/PayNet Small Business Lending Index dropped to 119.2 in February, falling slightly from 122.4 in January, Reuters reported. The index is based on borrowing by companies with $1 million or less in outstanding debt, based on data from more than 250 U.S. lenders.
The small February drop isn’t that big a surprise — that month was marked by constant snowstorms across much of the U.S., which helped to knock down retail sales by 10.4 percent compared with last year and pushed consumer confidence back down from an 11-year high.
But the 7 percent year-over-year increase in SMB borrowing is a sign that small businesses are investing in increased production — typically by buying new machinery, purchasing property or expanding business divisions, according to PayNet President Bill Phelan.
“It tells us that these businesses are investing because they are getting more orders and more purchases from their customers,” Phelan said. An increase of only 1 or 2 percent would have indicated that the businesses were just borrowing to replace worn-out assets.
The increase in investments is a leading indicator for increased production, with a likely lag of between two and five months before an improvement in gross domestic product. Small businesses account for almost half of GDP in the U.S.
In more good news from small businesses, a separate PayNet index showed SMB loan delinquencies of more than 30 days but less than 180 days were up only very slightly on a month-to-month basis, inching up by four basis points to 1.57 percent.
Phelan said the small increase wasn’t a cause for concern because it likely indicates cautious use of credit by small companies. He added that he expects small-business loan defaults to be moderate throughout the rest of 2015.