Cold weather chills US small-business credit conditions

New figures from Experian show that small-business credit conditions in the US deteriorated during the first three months of 2014, following a full year of steady improvement.

Findings from the Q1 2014 Experian/Moody’s Analytics Small Business Credit Index how that despite significant growth over the past two years, credit balances declined during the period and were down by 1.2% compared to the previous quarter. According to the report, the setback in credit balances was fueled in part by unusually harsh winter conditions, which also triggered the rise in delinquency rates, although the research suggests the situation is likely to improve soon.

“The improvement in small-business credit conditions paused early this year. However, this should prove temporary, as the broader economy revives from the severe winter weather,” said Mark Zandi, chief economist for Moody’s Analytics. “All the preconditions for stronger credit growth and fewer credit problems are in place, including sturdy profits and cash flow, record-low interest rates and low debt service burdens.”

Joel Pruis, Experian’s senior business consultant, said the first quarter fall in credit balances was down to a combination of larger creditors limiting business-to-business credit transactions and small businesses being more reluctant to take on debt. “With that said, as we move further away from the cold, wintry season, we should expect to see the growth rate for credit balances normalize as consumer spending picks up and small businesses feel more comfortable making credit-based purchases,” Pruis stated.

The report also indicates an overall rise in delinquency rates across the board, with the most noticeable increase in the 60- to 90-day range. Analysts say this suggests that small businesses have only recently run into problems with paying down balances, as longer-standing debt would have resulted in higher delinquency beyond a two- to three-month window.

Regional trends remain unchanged according to the latest analysis, with Utah retaining its long-term position as the best-performing state for business health. Conversely, Florida remains among the worst-performing states with 11 of its 22 metropolitan areas in the bottom 10% of business credit performance.

“The housing collapse certainly had a significant impact on our nation’s economy overall, making it difficult for those companies in the hardest-hit areas to stay on top of their business credit performance,” continued Pruis. “While the current landscape continues to look gloomy, there is reason for optimism. A recovering housing market and increasing population densities are enabling businesses in those areas to start paying down delinquent debt. We should see the gap between the top and bottom states close in the coming years.”