Small business positive on credit and prospects

Small-business credit conditions are continuing to improve while delinquency rates have hit the lowest level on record, according to the latest figures from Experian.

Experian/Moody’s Analytics Small Business Credit Index shows growth in outstanding credit balances coupled with delinquency rates falling to 8.8% from 9.3% the previous quarter.

The report also highlights significant improvement in several other key business credit health categories. Most notably, small businesses improved their payment behaviour in the third quarter, reducing the number of days they paid their bill beyond contracted terms by more than a day, or nearly 19%, from a year ago.

Additionally, over the same time period, small businesses saw a 4.5% increase in average commercial risk score, going from 58.0 to 60.6, while 11.9% fewer businesses filed for bankruptcy.

“The data showing improved business credit performance doesn’t just benefit small businesses, but it also helps lenders and suppliers,” said Joel Pruis, Experian’s senior business consultant. “Not only do they have the reassurance that they’ll see repayment on loans that they’ve extended, but they will be able to use this insight to take the appropriate action to better mitigate risk and have more confidence when making future lending decisions. If the positive performance continues during this stressful time of the year, both small businesses and lenders will be able to enter 2015 with some momentum.”

Data from the National Federation of Independent Business (NFIB) Small Business Optimism Index broadly supports this view, showing a modest increase in the net percent of business owners who plan to increase capital spending and more who expect higher sales in the next three months.

NFIB’s chief economist Bill Dunkelberg said: “They’re making capital investments and trying to fill positions despite that they cannot anticipate a better economy. Basically they’re preparing to taxi the runway but they don’t expect to take off anytime soon.”

Research from National Funding, a leading private lender of small business loans, found that 4.3% of small business owners expected to borrow money over the holidays and more than 37% of those said they were not confident that their banks would grant them a loan should they need one.

David Gilbert, founder and CEO of National Funding, said: “The truth is that 4.3% is probably under-reported because the majority of loans that arise during the holiday season are last minute. Alternative lending options, like working capital loans, merchant cash advances or small ticket equipment leasing, offer the flexibility and quick turnaround needed for owners to keep their businesses running smoothly.”