Small business continues to dominate news headlines. Each month in our Commercial Small Business Insights webinars, we focus on what is happening in the economy and the latest Equifax small business lending, delinquency and default data—known as our Small Business Indices. We analyze specific industries and regional trends with an eye toward implications for the commercial credit markets. Equifax Senior Index Developer Elaine Makdah and Senior Statistical Analyst Sarah Briscoe, who regularly present this data on the Small Business Insights webinars, explain how businesses can leverage the data to get back to growth.
What Are the Small Business Indices?
What are the Small Business Indices and what do they measure?
We produce the Small Business Lending Index (SBLI), the Small Business Delinquency Index (SBDI), and the Small Business Default Index (SBDFI).
The SBLI measures origination volume. It is segmented into 988 indices at the national, state, and industry levels. These indices are formulated on a rolling 12-month basis due to the volatility of smaller sample sizes.
The SBDI tracks delinquencies. It measures the percentage of loans that are 31-90, 91-180, and 31-180 days past due. This index is produced by six industry-segments, by state and by overall U.S., and the intersection of geography and industry, for a total of 364 indices at each metric.
The SBDFI measures annualized default rate by 18 industry segments, by state, by overall U.S., and the intersection of geography and industry, for a total of 988 indices.
Finally, APD County NAICS Outlook is an extension of a probability of default model. It provides four-quarter probability of default at the two-digit, three-digit and four-digit NAICS code level, by state and by county and the intersection of geography and industry.
Do you include loans in forbearance in the indices?
We are not excluding any loans in forbearance from the indices. In Summer 2020, we saw a decrease in 31-90 day delinquency after early pandemic spikes, both due to the Accommodations sector activity and full or partial payments that are being made up. We did see a decrease in delinquency, until the most recent uptakes that we were seeing again.
What lenders do you include in these indices?
We include some of the largest lenders in our commercial credit database in the indices using either origination volume or balance outstanding. The indices are optimized and the models work such that we can take in movements in the data and the data is smooth across time. It's an established model that makes sure that we're able to keep consistent index values across different months.
How do you define small business?
For the purposes of the indices, we define small businesses for any given month as any borrower that owes less than a million dollars across the credit and the payment database.
How do you define the industries in the SBDI, SBLI, and SBDFI?
The SBLI and the SBDFI use the 18 two-digit NAICS codes. SBDI is a bit of a combination; we use keywords for that, as well as SIC codes to try to get the most data in there possible.
How do you define default for the Small Business Default Index?
Default is defined as, it's far away to days past due or bad status of bankruptcy, repo, legal or loss.
Usage and Benefits
How do organizations use the Small Business Indices?
Because small businesses generally respond to changes in economic conditions more rapidly than larger businesses do, the Small Business Indices serve as a leading indicator of the economy. Equifax Small Business Indices provide insights to executives, economists, policy makers, investors, and regulators. These insights help them understand each stage of the business cycle and set credit oversight policies. Some user benefits that we have seen include: early insight into market conditions, reliable information to assess risk exposure and to evaluate findings across multiple sectors of the economy, and the ability to benchmark a portfolio against national lending and performance trends.
How can a lender use these types of indices and models?
We have lenders that use these types of indices and models to benchmark their own origination and performance trends, to set credit policies, and in their own model builds. So we are seeing it used many different ways.
A Case Study Example
Do you have a specific example of how a customer has leveraged this data to manage and grow their business?
One of our customers is a national lender who’s using this data on a monthly basis to benchmark their portfolio. First, they look at where lending is diminishing or going up. They look at certain states with their footprint to determine where they should increase marketing efforts or scale back their business. They look at it by industry, especially the industries they focus on. Then, they look at both the delinquency and default indices to understand where they should be doing more or less business—and adjusting credit policies. It’s a tool that you can manage your business on. Especially in the last year, many of our clients have wanted to understand what's happening in their portfolio.
Using our AbsolutePD® product, in conjunction with this data, they can see around corners and stay on top of what's happening. Most importantly, they can understand when we're coming out of recession and get ahead of the game. As a lender, the sooner you understand what's happening in the economy, that's when you can make informed decisions.
How to Access the Small Business Indices
How often do you update the Indices and where can users access them?
We publish the Indices at the beginning of each month to reflect the most recent changes in the data. We offer the Indices in the form of datasets available for purchase. You can check out our Indices for yourself on our website. The Risk Insight Suite (RIS) is home to the Indices. RIS is an interactive platform on which users can compare origination, delinquency and default trends across states and industries.
Is it possible to get the raw data?
Yes, it is possible to get raw data. We have raw data for all of the Indices as well as APD County NAICS.
How can a user reach out to learn more?
Anyone interested can contact their relationship manager if they're already a customer of Equifax or you can email us at email@example.com. To register for our upcoming Small Business Insights webinars and stay on top of the latest data, click here.