Small business lending recovers, delinquencies drop to record low

The number of business owners behind at least one month on their loan payments has dropped to its lowest level on record. (Scott Eells/BLOOMBERG)

Just in time for summer, lenders are warming up to small businesses again.

The overall volume of loans to small companies rose 12 percentage points in May, marking the largest month-to-month increase in three years and nearly erasing four consecutive months of decline to start 2012, according to the latest data released by Thompson Reuters and PayNet.

Compared to the same month last year, borrowing is also up 18 percent, suggesting small business owners are starting to seek — and more often find — financing to expand their enterprises or hire new workers. PayNet founder Bill Phelan said low interest rates and healthier balance sheets likely contributed to the turn around, though he said it won’t be enough to prompt a surge in investments by small business owners.

Instead, he predicts small businesses will continue to tread carefully and that the economy as a whole will continue to “muddle through” the next few months.

“I doubt this means the small business owner is going to indiscriminately throw caution to the wind and start investing wildly,” Phelan said in a statement. “Rather, we expect to see steady and cautious expansion by small businesses, if we can avoid external shocks such as another credit crisis.”

Not only are small business owners securing the capital they need, but it appears they are finding it increasingly easy to pay back those loans, too. The report also showed that the number of business owners behind at least one month on their payments dropped in May from 1.28 percent to 1.18 percent, the lowest reading since the company began crunching the numbers in 2005.

Borrowers behind at least 180 days also dipped from 0.44 percent to 0.40 percent in May.

“If small businesses do decide to keep their foot on the gas, they are very well positioned to speed up the economy,” Phelan said.

Related: Still can’t get a loan? Here are seven solid alternatives for small businesses.

Follow J.D. Harrison and On Small Business on Twitter.

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.



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