Canadian SMBs’ Lending Struggles Continue

Canadian investment in its small- to medium-sized businesses (SMBs) saw an uptick in February over the prior month, but the latest readings of small business credit data and analysis provider PayNet’s lending index indicate an ongoing struggle and undefined future.

PayNet released its February Canadian Small Business Lending Index results on April 13, showing a nearly two-point bump from January, yet the index was down 5% from February 2017. Although delinquencies among SMBs decreased for the 11th consecutive time year-over-year, the number of loans past the 30-day due date increased month-over-month in February 2018, Business Wire reported, particularly in accommodation and food, wholesale, transportation and retail.

In the same report, PayNet President William Phelan said SMBs are stepping away from borrowing in the meantime after showing strong numbers in early 2017.

“While still low by historical standards, this jump in 30-day delinquencies means Canadian private businesses are experiencing increased financial stress,” Phelan noted in the Business Wire report. “Whether this rising stress is a correction from unusually low levels of delinquency or a material shift in direction remains to be seen.”

The Canadian index reading differed from the Thomson Reuters/PayNet Small Business Lending Index for the U.S., where numbers not only increased for the fifth consecutive month, but also scored the second-highest reading in history. Growing industries included construction, public administration, transportation and warehousing; however, delinquencies were still prevalent, as past dues between 31 and 90 days increased nearly 1.5% in the past year. Like Canada, U.S. small business delinquencies were seen in transportation and retail in addition to construction.

-Andrew Michaels, editorial associate

Contractors of DOT Projects Confront Credit Complications

Contractors on large Department of Transportation (DOT) projects could face credit complications in the foreseeable future in connection to minimal state revenue growth and federal funding, Fitch Ratings reported on April 13.

State-level funding was often provided for such projects but has declined over the past few years, leaving contractors to seek other sources. One example is bridge financing, which Fitch said allows contractors to enter into low-cost contracts that they then increase by order changes or dispute resolutions. Although these excess costs might get repaid, contractors’ credit is affected because of the ramifications on their “near-term liquidity and working capital.”

“The National Association of State Budget Officers reported that 22 states made midyear budget cuts in fiscal 2017,” Fitch said, “and midyear budget reports and executive budget proposals released to date indicate some will report deficits for current and upcoming fiscal years.”

Fitch also noted how the U.S. administration’s infrastructure proposal relies heavily on state budgets; therefore, federal funding probably won’t come to pass. The majority of the plan revolves around roughly $200 billion in federal funding in the next decade, but it’s specifically geared toward transportation programs that are underway.

“States and local governments are asked to provide up to an 80% match for competitive grants and loans for $120 billion of the $200 billion in total funding,” Fitch added.

-Andrew Michaels, editorial associate

India’s Economic Growth Increases Likelihood of ABS Loan Repayment

Credit managers conducting business in India have no need to worry when it comes to asset-backed securities (ABS), as Moody’s Investors Services reports a “pick-up” in the country’s economic growth, increasing the likelihood of loan repayment.

India’s economy grew 6.2% in 2017, with expectations even higher at 7.6% this year. As borrowers rake in a steady income, Moody’s said this will enable them to repay their loans that back ABS. Such loans include auto loans as well as loans against property (LAP) to micro, small and medium enterprises (MSMEs).

“Auto ABS delinquency rates will remain stable at current levels through 2018, but delinquency rates for small- and medium-size enterprise ABS backed by [LAP] will continue to rise …” Moody’s Analyst Vincent Tordo said in a press release.

Tordo explained demand for freight transportation is increasing and noted that commercial vehicle (CV) loans back auto ABS in India. Therefore, such demand creates more revenue for CV operators, providing them with the funds to repay.

-Andrew Michaels, editorial associate

Companies Debate Small Business Hiring Growth

The cost-saving efforts of the U.S. tax reform are beginning to manifest in the small business market, as financial services and business consultant CBIZ, Inc. recorded a bump in its Small Business Employment Index (SBEI) in March.

February’s disappointing results of a slight decrease in hiring among small businesses was redeemed last month when the SBEI showed a 1.39% increase, following a survey of thousands of companies with 300 or fewer employees released on April 6. Less than one-fifth of respondents decreased in hiring but were outweighed by the nearly 30% of businesses that said they increased hiring. In a press release on April 6, CBIZ Employee Services Organization President Philip Noftsinger likened this boost to the tax cuts.

“As small business owners begin to realize the benefits of tax reform, they will likely translate to better wages and more jobs,” Noftsinger said in the release. “Almost every industry represented in our SBEI grew their staff totals in March, so if this positive trend continues, the economy could be seeing solid growth across the board going forward.”

Years past have shown similar results in March hiring numbers, which economists have attributed to better weather. However, CBIZ’s results were contradicted by the Small Business Jobs Index conducted by Paychex, Inc., which provides payroll, human resource and benefits outsourcing services for small- to medium-sized businesses (SMBs). On April 3, Paychex reported a decrease in small business employment growth of 0.12%—the lowest point since 2011, IHS Markit Chief Regional Economist James Diffley said in the report.

Despite Paychex’s recorded dip in hiring, the report said wages in March 2018 increased about 2.7% over the prior year.

-Andrew Michaels, editorial associate

American Bankruptcies Decline in 2018 1Q

Bankruptcy filings are down in the U.S., according to the American Bankruptcy Institute (ABI). Its latest release reported first quarter bankruptcies declined 4% compared to the same time last year.

According to ABI and data from Epiq Systems, there were more than 187,000 during the first quarter of 2018. There were more than 195,000 in 2017’s first quarter. Noncommercial filings also declined 4%, while commercial bankruptcies dropped 1%. Despite the overall improvement in commercial filings, Chapter 11 commercial filings increased 22% compared to the first quarter of 2017.

“Volatile market conditions in retailing have led to an increase in commercial cases, while a long-awaited course correction on Fed monetary policy could make credit more expensive for consumers with household debt,” said ABI Executive Director Samuel J. Gerdano in the release.

There were 770 commercial Chapter 11 filings in March 2018, a 64% jump compared to March 2017. Total commercial filings in March decreased 7%.

Alabama, Tennessee, Georgia, Mississippi and Illinois led the nation in per capita bankruptcy filing rates during the first quarter of the year (total filings per 1,000 population). The national average increased to a rate of 2.42. Alabama and Tennessee were each over 5.5.

-Michael Miller, managing editor

China’s Payment Delays Growing

Credit managers might want to revisit their payment terms when it comes to extending credit in China. According to a recent report from credit insurer Coface, payment terms with Chinese businesses significantly increased in 2017, leaving risk managers “more complacent” in regards to their current expectations.

On April 3, Coface released its China Corporate Payment Survey for 2018, consisting of more than 1,000 company responses that were collected during the fourth quarter of 2017. The results showed an eight-day increase in the average payment terms from the prior year, although respondents who reported payment delays dropped to 29% from 46% in 2016. Some of the data baffled economists, particularly because of the country’s economic successes over 2016—its GDP jumped about 0.2%.

“The proportion of respondents experiencing payment delays exceeding 120 days increased to 26% in 2017 from 19% in 2016, while those experiencing ultra-long (more than 180 days) payment delays exceeding 2% of their annual turnover increased…,” Coface reported.

Companies’ cash flow is then at risk, the report explained, because 80% of ultra-long payment delays don’t get paid and, therefore, impact the company’s annual turnover. These delays are more prevalent in the energy, construction and automotive sectors; however, they’re lower in paper and textiles, as well as the pharmaceutical sector.

-Andrew Michaels, editorial associate