Small Business Borrowing Soars

"A Solid 3rd Quarter Is Taking Shape Here"

Small Business Borrowing SoarsNew data shows small business borrowing in the U.S. leapt to a seven-year high in July, driving hopes that economic recovery is taking hold. The Thomson Reuters/PayNet Small Business Lending Index increased from 120 in June to 128.5 in July, marking the highest tally since March of 2007. The 128.5 figure represents the third best monthly showing since the PayNet index started in 2005.

“A solid third quarter is taking shape here, for small businesses and for the U.S. economy,” said PayNet Founder Bill Phelan. “I think they are seeing demand right now. This has got to be showing some strength in orders.”

Analysts believe the robust borrowing activity indicates that businesses are ramping up for future growth, investing in their companies far above what is needed merely to replace outdated equipment. Encouragingly, the index typically correlates to U.S. gross domestic product growth two to five months ahead, suggesting the economy is strengthening and will continue to grow healthier.

Additionally, the increase in borrowing could bode well for job growth. Phelan said there is a correlation between a rise in loans and job creation. The monthly closely-watched ADP Employment Report, released this morning, showed 204,000 nonfarm private sector positions were created in August. The official government jobs report comes out tomorrow.

The one discordant note sounded from PayNet was that a separate index it maintains showed that loan delinquencies of 31 to 180 days inched up in July, rising from 1.53% to 1.55% of all loans made. Still, that’s far better than the 4.73% delinquency rate recorded in August of 2009. The record low was 1.44% last October.