Small-Business Borrowing Rises to 6-Year High

Before you go, we thought you'd like these...
small businesses boost borrowing
Globe Newswire
By Ann Saphir

U.S. small businesses boosted borrowing in October to its highest level in more than six years, an index showed Tuesday, fresh evidence that the budget battle that shut the federal government for 16 days did little to derail underlying economic growth.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the volume of financing to small companies, rose to 120.4 in October, PayNet said Tuesday. That was the highest level since August 2007, just as the devastating U.S. financial crisis was gaining steam.

In September, the index registered a reading of 109.9.

Historically, PayNet's lending index has correlated to overall economic growth one or two quarters in the future. Small companies typically take out loans to buy new tools, factories and equipment, so more borrowing can be an early harbinger of increased hiring ahead.

The increase "bodes well for GDP," PayNet founder Bill Phelan said. %VIRTUAL-article-sponsoredlinks%"When you have investment to increase assets to produce more goods, you've got to believe there's more job creation going on."

With U.S. economic output now higher than it was when the index last peaked in January 2007, "there's a lot of room to grow here; this does not indicate any kind of froth," he added.

The outlook for the job market is crucial to the Federal Reserve's decision on when to cut back on its massive bond-buying stimulus program, as Fed Chairman Ben Bernanke has said he wants further proof of labor market strengthening before doing so.

The Fed next meets in two weeks to debate policy, although many economists do not expect central bankers to begin trimming bond buys until next year.

Economic data has been mixed of late, with one gauge of U.S. factory activity rising last month to its highest since 2011, but factory payrolls pointing to a slowdown in manufacturing.

Lower financial stress at small businesses, with more of them paying back loans on time, could also bode well for future borrowing.

Delinquencies of 31 to 180 days held in October to 1.43 percent of all loans made, according to the Thomson Reuters/PayNet Small Business Delinquency Index -- a new record low.

A measure of accounts overdue as a percentage of all loans has fallen steadily since rising as high as 4.73 percent in August 2009.

PayNet collects real-time loan information such as originations and delinquencies from more than 250 leading U.S. lenders.

12 PHOTOS
Quiz: The Small Business Impact
See Gallery
Small-Business Borrowing Rises to 6-Year High

A. 50
B. 500
C. 1,500
D. 2,000

According to the Small Business Administration's size standards, the definition of small business varies widely, depending upon the industry that they work with. For example, petroleum refineries, ammunition manufacturers, and thirteen other businesses can qualify as "small businesses" if they have fewer than 1,500 employees.

A. $650,000
B. $950,000
C. $1 million
D. $35.5 million

Another way of looking at a company's size is its yearly income. For parking lots, industrial launderers, home centers and fourteen other businesses, yearly gross income of $35.5 million is the cut-off between a small business and a large one.

A. 50
B. 250
C. 750
D. 1,500

In the European Union, policymakers take the idea of small businesses at face value. According to the SME User Guide of the European Commission, a small business can have no more than 50 employees. Interestingly, this is also the cut-off line drawn by the Patient Protection and Affordable Care Act.

A. 5%
B. 20%
C. 43%
D. 57%

According to the Small Business Administration, a stunning 43% of all private payroll in the U.S. comes from small businesses. In other words, almost half of all privately-paid salaries come from small businesses, not big conglomerates.

A. 1%
B. 3%
C. 10%
D. 40%

Tax critics argue that increasing taxes on millionaires would cripple small businesses. In reality, however, only 3.31% of small business owners make $1 million or more per year. In fact, over 75% make less than $200,000 per year -- putting them well below the cut-off for President Obama's proposed tax increases.

Small businesses are a big part of the engine that propels the American economy -- study after study shows that they are the quickest to add jobs, the biggest growth sector of the economy, and a major contributor to GDP.

But are America's small businesses being used to sell its taxpayers a bill of goods? When huge airline manufacturers and home repair stores are getting many of the same benefits as the local mom and pop store, it's worth asking if we need to reconsider our small business standards -- and support the people who really need it.

of
SEE ALL
BACK TO SLIDE
SHOW CAPTION +
HIDE CAPTION
Read Full Story

People are Reading