Small Business Borrowing Fell In January; Points to Economic Weakness

Small Business Borrowing Fell In January; Points to Economic Weakness
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Small Businesses might be witnessing challenges in securing finances post-recession, but they have gradually become the leaders of the U.S. economy. Recent data suggests that the small businesses played a key role in adding as much as 64% of the net new jobs since the last recession.

SFBI denotes fastest pace

More data from the Store Front Business Index TM (SFBI) revealed that small businesses are growing at a pace higher than the U.S. GDP (Gross Domestic Product). The SFBI evaluates nearly 3.4 million business establishments in the U.S. regarding real wages, new establishments and employment. The SFBI Index grew 3.1% in real terms to 112.9 in the second quarter of 2015 from 109.5 points in the second quarter of 2014. These numbers are significant given the fact that the real GDP growth in the U.S. is at 2.7%. The SFBI is expected to grow to 114.5 points in the fourth quarter of 2015.

Borrowing dipped in January

However, the future hints at some headwinds for the small businesses as the borrowing by this segment hit a one-year low and went down by 13% in January. Reuters reported that PayNet Small Business Lending Index reading came in at 118.2 in January, which is the lowest since November 2014.

Bill Phelan, President of PayNet, expressed concerns on the numbers stating that it is a dramatic fall in the small business lending. He added that the borrowing level was not even sufficient to replace dilapidated machines while the purchase of new equipment was out of the question.

The fall in the index suggests that the economic growth could falter over the ensuing months. Lending to small businesses is regarded as a key barometer of growth given their immense contribution to the economy.

Apart from this, Phelan highlighted that there is erosion to some extent as far as the delinquency rate on loans of over 30 days past is concerned. The delinquency rate stood at 1.48% in January, marking the highest level since June.