PayNet: Small Business Borrowing Up

Borrowing by small U.S. businesses surged in April, data released by PayNet Inc on Wednesday showed, providing some evidence the economy is not headed for a prolonged soft patch.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to U.S. small businesses, rose 17% in April from a year earlier, PayNet said. It was the ninth straight double-digit rise in the index.

A string of disappointing economic data, including on Tuesday alone a double dip in home prices, pessimistic consumers and a manufacturing slowdown in the U.S. Midwest, has some economists worrying whether the United States is headed for slower growth for the rest of the year.

GDP grew by only 1.8% in the first quarter.

While the borrowing index slipped about 1% from the prior month, the continued year-over-year gains suggest small businesses are primed to grow once demand for their goods and services picks back up, said William Phelan, PayNet's president and founder.

"The fact that small businesses are hanging in there is a good sign for the economy" Phelan said in an interview. "The data tells us they are having more of a pause than a major contraction."

Borrowing by small businesses is seen as a harbinger for the broader economy because small firms account for as much as 80% of new hiring. The Thomson Reuters/PayNet index has proven a good predictor of GDP trends about two to five months in advance.

Separate data released by PayNet on Wednesday showed that fewer companies are falling behind on their existing loan payments, and suggests businesses have the capacity to take on new loans when needed.

Accounts in moderate delinquency, or those behind by 30 days or more, fell in April to 2.06%, near levels common before the recent recession.

Accounts 90 days or more behind in payment, or in severe delinquency, fell to 0.64% in April from 0.67% in March.

Accounts behind 180 days or more, or in default and unlikely to ever get paid, fell to 0.76% of total receivables in April, from 0.77% in March, according to PayNet, which provides risk-management tools to the commercial lending industry.

The Thomson Reuters/PayNet small business lending index is correlated to developments in the overall economy, with changes in the index preceding changes in the overall U.S. economy by two to five months.

PayNet collects real-time loan information, such as originations and delinquencies, from more than 250 leading U.S. capital equipment lenders.