Small Business Credit Quality Is On the Rise

By Charles H. Green

More positive news for small business lenders as evidence mounts that some trailing indicators are pointing to markedly improved conditions. Experian announced the results of its monthly survey of small business credit performance, and noted that that due to a rise in outstanding credit balances and a decrease in credit delinquency rates, small-business credit quality continued to show significant improvement in the 3rd quarter of 2013.

The joint report issued by Experian/Moody’s Analytics, titled the Small Business Credit Index, rose 2.3 points to

Experian/Moody's Analytics report shows small-business credit quality continues to improve as credit balances rise and delinquency rates fall. (PRNewsFoto/Experian)

Experian/Moody’s Analytics report shows small-business credit quality continues to improve as credit balances rise and delinquency rates fall. (PRNewsFoto/Experian)

118.5, up from 116.2 the previous quarter. This marks the index’s third consecutive quarterly improvement, and its second consecutive record-breaking mark.

“Small businesses are getting their finances in order. Lower delinquency and stronger credit growth bode well,” said Mark Zandi, chief economist at Moody’s Analytics. “It won’t be a straight line up for small businesses, and the recent government shutdown hurt, but their prospects are improving.”

“For the last year, we’ve seen significant improvements in small-business credit conditions. The reduction in past outstanding balances and improved payment performance by small businesses has provided them with the ability to increase credit balances in the third quarter,” said Joel Pruis, Experian’s senior business consultant.

What does this mean for business lenders? The data showing definite, sustained improvement of outstanding loan balances and loan payment trends bode well for a stronger recovery the sector has been waiting for. While credit standards are expanding at an excruciatingly slow pace, business owners are repaying that expansion with positive performance.

To be sure, the analysis still provides plenty of data to be concerned about. Business owners are still leery of the future. Builder cash flows are still struggling as credit availability is still tough in that sector.

Regionally, the Atlantic Seaboard is still struggling with higher delinquencies from Florida to Massachusetts.

All eyes will be on the next horizon to check for continued positive trends. As more lenders continue to strengthen and build more stable balance sheets, loan production will likely continue growing.

Let’s keep our fingers crossed.

Download a copy of the Experian/Moody’s Analytics Small Business Credit Index here.

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