PayNet: Small Business Expands ‘Robustly’ in January

Small business lending expanded robustly in January, according to a report from PayNet. The Thomson Reuters/PayNet Small Business Lending Index (SBLI) increased to 143.6 in January, nearing the all-time high reached in July 2015. The SBLI is up nearly five points compared to last month and is 14% above year-ago levels. The SBLI three-month moving average also rose in January and is up more than 8% over the last 12 months.

Most industries saw growth in January, led by construction (7.6% year-over-year) and public administration (6.3% year-over-year). According to PayNet data, construction lending to small businesses has risen consistently since late 2016 and is at its highest level since 2008, mirroring the sharp 13% expansion in residential investment in Q4/17.

“After years of sluggishness, small businesses are finally getting back in the game and increasing their capacity,” said William Phelan, president of PayNet. “It’s good to see main street more involved in the expansion, as small businesses appear to be going ‘all-in,’ investing in more property, plant and equipment tools and services.”

As the economy continues to accelerate, small businesses are showing slight increases in financial stress. The Thomson Reuters/PayNet Small Business Delinquency Index (SBDI) 31–90 Days Past Due inched up to 1.38% in January and is up five basis points over the last 12 months.

Delinquencies rose in most large industries in January, led by construction (+14 basis points compared to a year ago), though transportation delinquencies declined on an annual basis for the sixth consecutive month. Regionally, delinquencies are up in nine of the 10 largest states by an average of 20 basis points since August 2017, though they remain low by historical standards in most states.

The PayNet Small Business Default Index (SBDFI) fell three basis points to 1.82% in January. Defaults have been on a slightly downward trajectory over the last year after rising steadily throughout 2016, which likely reflects the broad-based economic rebound that began in late 2016. Five of the 18 industrial sectors saw defaults rise in January, though 10 experienced higher default rates compared to a year ago. Notable default rate increases occurred in information (+83bp year-over-year) and accommodation and food (+27bp year-over-year), while mining (-232bp year-over-year) and transportation (-40bp year-over-year) continue to show marked improvement over the last 12 months.

“The economy continues to perform well, and the combination of a lower tax burden and lighter-touch regulation should help keep it rolling in 2018,” Phelan said. “We fully expect banks to increase their lending activity to small commercial and industrial business in the months ahead.”

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