PayNet’s Small Business Lending Index decreased 9.7% on a monthly basis in December. Compared to its year-ago level, the index fell 7.0% — its first year-over-year decline since September 2017.

Lending contracted in seven of the largest industry sectors on an annual basis, led by accommodation & food services (-17.1% y/y), public administration (-7.3% y/y), and professional, scientific, & technical services (-1.4% Y/Y). The SBLI 3-month moving average slipped 0.8% on a monthly basis, its fourth decrease in the last five months.

“This month’s data is another warning sign that Main Street is tapping the brakes on its borrowing,” said PayNet President William Phelan. “Though the economy remains on decent footing, we expect economic growth will slow this year, and it appears that small businesses are becoming more risk averse in anticipation.”

The recent partial government shutdown may have played a role in the SBLI’s decline in December. As a result of the 35-day shutdown, SBA loans to Main Street borrowers were halted, leaving hundreds of applicants in limbo. The Congressional Budget Office estimates that the shutdown will ultimately reduce GDP by $3 billion, and PayNet estimates that the shutdown had the potential to impact $23 billion in credit if it had continued for over six months.

PayNet’s Small Business Delinquency Index (SBDI), which measures loans 31-90 days past due, rose 2 basis points over the prior month to 1.45% in December. On a year-over-year basis, the SBDI is up 8 basis points.

Meanwhile, loans severely past due held steady at 0.38%. Compared to November, all major industries saw 31-90 day delinquencies rise or hold steady in December, with notable increases in transportation (+6bp m/m), agriculture (+5bp m/m), construction (+4bp m/m), and retail (+3bp M/M).

“The slowdown seen in the major industry sectors means this small business lending slowdown is a hit to the real economy,” added Phelan. “On the bright side, credit risk remains low and the financial health of Main Street remains strong. But confidence is fickle, and this report signals a downshift in Main Street business optimism — which we suspect will impact GDP in the next quarter.”