Small Business Borrowing Boost Paves the Road to Recovery

An index that measures small business lending in the U.S. rose 16% in September, marking a second consecutive month of double-digit increases by the index and signaling that the economy is on the road to recovery, according to a report released Monday.

The performance of small business lending, as gauged by the Thomson Reuters/PayNet Small Business Lending Index, serves as a leading indicator of the path that the nation's gross domestic product is likely to take in the coming two to five months, said William Phelan, PayNet founder and president.

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The index was largely in a downward trend from January 2007 until March of this year, the start of a period of moderate increases that tailed off into a lackluster gain of 2% in July. But in August, the Small Business Lending Index posted a 15% increase over last year and followed that up with a 16% bump up in September.

"It's not yet a robust recovery, but clearly we're on the road to a recovery," Phelan said, noting that the index tends to reflect the general movements in the broader economy.

With small businesses ramping up their borrowing, it should come as no surprise that they've been paying their bills on time with greater frequency. On Friday, PayNet released figures showing that the delinquency rate for small business loans has been improving across the board, from those who are behind 30 days or more to those who are in default, according to a Reuters report.

Loans that were behind 30 days or more fell to 2.65% in September from 2.81% in the previous month. And loans that were 90 days or more past due dropped to 0.76% in September, down from 0.85% in August. And defaults -- those loans that have not seen a payment in 180 days or more -- made an incremental improvement to 0.81% from 0.84% a month earlier.