Small Business Credit Conditions Improve for Fourth Consecutive Quarter as Index Rises to Highest Level

According to Experian/Moody’s Analytics Small Business Credit Index, a business index and detailed report that provides insight into the health of U.S. businesses, small business credit conditions improved for the fourth consecutive quarter in the last three months of 2013.

This fourth quarter reading is the highest since the index began. The data shows that business are finally recovering after the almost five-year-old US recovery. And it’s about time!

The index measures the credit quality for firms with fewer than 100 workers. Although there were a few declines along the way, the trend has been positive in the past two years.

According to the study, the fourth quarter rise can be most directly be related to the credit balance growth in the latter half of 2013. However, improvement was tempered last quarter by a slight rise in the delinquency rate, which crept higher to 10.2 percent from 10.1 percent in the previous quarter.

It should be noted that, as expected, the Federal Government shutdown in October had little impact on credit balance growth. According to the U.S. Small Business Administration, federally backed small business loan volumes were 25 percent below year ago levels as October ended, but closed the year just 4 percent low. The Federal Reserve’s quarterly Loan Officer Survey stated that, the small-business credit faucet appears to be opening back up, especially with private lenders.

A bipartisan deal to fund the government shutdown through fiscal 2014 removes a great deal of financial uncertainty in the near term, and risks to the outlook of the U.S. economy appear less threatening. Assuming Congress passes a resolution to raise the debt ceiling before march, two of the most prominent policy hurdles facing small firms will have been removed. The silver lining to this is, assuming that recovery plays out to script, accelerating economic growth should make it easier for these firms to absorb the added costs.

As far as Small Business Lending is concerned, the majority of banks consistently have loosened credit terms for small businesses. However, this conveys only a fraction of what is going on with small business lending. Financial lines of credit comprise only about 25 percent of the data used in the Small Business Credit Index. The other three-quarters represent business to business credit transactions.

According to Mark Zandi, Chief Economist at Moody’s Analytics, “Credit is flowing more freely to small businesses….With more credit, small business are increasingly able to expand their operations. This means more investments and jobs, and a stronger economy.”

** Information, statistics, and data derived from Experian/Moody’s Analytics Small Business Credit Index.