Small-Business Credit Conditions Reach New Heights

Small businesses have access to a wider availability of credit as credit conditions reached new highs, improving for the third-consecutive quarter, according to the recent Experian/Moody’s Analytics Small Business Credit Index (SBCI). The index grew 1.5 points to 116.7, quarter to quarter. Credit balances expanded by 2.2% compared with the previous year, and delinquency rates declined to a cyclical low of 8.5%, both of which improved the index as did an expansion in the number of trades. The index measures credit conditions for companies with fewer than 100 workers.

“Small businesses are finally kicking into high gear,” said Mark Zandi, Moody’s chief economist. “They are investing and hiring more and are borrowing more to finance their expansion. They are also repaying what they have already borrowed in a more timely way. Business conditions are much improved and will likely improve even more in coming quarters.”

Small businesses also improved their risk and payment behavior. For example, over the last year, they reduced the number of days they paid their bills beyond contacted terms by full a day, or more than 19%. Over the same period, a small business’s average commercial risk score—based on a scale of 1 to 100, with 100 being least risky—grew to 61.6, a 3.1% hike, and bankruptcy rates fell 10.9%.
If small businesses maintain this payment behavior, “the credit spigot will continue to widen, opening up more opportunity for small businesses to grow,” said Dan Meder, vice president for Experian’s Business Information Services.

Increased confident in small businesses’ ability to pay could translate into more available credit and sales, Meder said. Lenders and suppliers, however, should track data trends so that they make confident decisions and reduce risk, he warned.

Credit quality split along regional lines as western states fared better than states east of the Mississippi, and the Mountain West region had lower delinquency rates. Northeast and Midwest states continued to lag as the housing market recuperates.

- Diana Mota, NACM associate editor

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