According to PayNet, small business lending improved again in February, with the Thomson Reuters/PayNet Small Business Lending Index rising to 144.8, its second-highest reading in history and fifth consecutive monthly increase. The index is up 1.0% from January and up more than 12% over the last 12 months. The index’s three-month moving average also rose and is now nearly 10% above its year-ago level.

The majority of industries experienced growth in February, led by construction (7.4% year-over-year), public administration (7.3%) and transportation and warehousing (7.2%). Notably, lending in the agriculture sector increased on an annual basis for the fourth straight month after falling consistently for more than three years. A similar development may be taking place in manufacturing, which was up slightly in February (0.3%) after 12 consecutive months of year-over-year declines. Regionally, nine of the 10 largest states experienced year-over-year lending growth, with North Carolina and Michigan climbing to all-time highs.

“At this time last year, small businesses were generally still hunkered down and unwilling to borrow in great amounts to invest and expand,” said William Phelan, president of PayNet. “But it looks like the switch finally flipped last fall, and we’re now seeing the small business community getting back in the game with aggressive increases in borrowing and investment.”

As the business cycle matures and interest rates rise, small businesses are showing modest increases in financial stress. The Thomson Reuters/PayNet Small Business Delinquency Index 31–90 Days Past Due edged up to 1.39% in February and is up five basis points over the last 12 months. Most industries saw delinquencies rise in February, led by construction (16 basis points year-over-year) and retail (eight), though transportation delinquencies fell to the lowest level in nearly two years (down 35 basis points). Regionally, delinquencies rose in seven of the 10 largest states on an annual basis, led by Florida (21 basis points), but remain low by historical standards.

The PayNet Small Business Default Index (SBDFI) ticked down one basis point to 1.82% in February and is down four basis points compared to a year ago. On an annual basis, roughly half of the major industries experienced higher defaults, led by the information sector (64 basis points) which has seen defaults rise consistently over the past 12 months. Meanwhile, mining (down 242 basis points) and transportation (down 76) continued to improve. Of note, both manufacturing and agriculture saw year-over-year defaults fall in February after 3.5 years of increases.

“Elevated confidence levels among small businesses indicate an optimistic outlook for the year ahead, and a healthy economy should continue to support lending activity moving forward,” Phelan said. “In our view, the biggest question is not whether the current trend of small business expansion will continue, but whether banks and other lenders are prepared to respond to increased small business demand for C&I loans.”