Equifax May Small Business Lending, Delinquency and Default Data Rise

May 23, 2023

THE EQUIFAX SMALL BUSINESS LENDING INDICES MEASURING LENDING, DELINQUENCY, AND DEFAULT ALL SAW INCREASES IN MARCH. In March, the Equifax Small Business Lending Index (SBLI) increased to its highest point in almost two years, defying the broader slowdown taking hold in the U.S. economy. Even though small business lending activity remains elevated, both hiring plans and capex plans are falling sharply and credit conditions continue to tighten. Both the Equifax Small Business Delinquency Index (SBDI) and the Small Business Default Index (SBDI) continued to increase slowly month-over-month in March. These increases reflect pressure on small business sales as consumer spending flattened in March.

"Small businesses have shown remarkable resilience, and the increase in the Equifax Small Business Lending Index in March is a testament to their strength and determination,” said Bill Phelan, General Manager of the Equifax USIS Commercial business. “However, as we navigate tighter credit conditions and rising delinquencies and defaults, it's crucial that small business owners stay vigilant and adapt."

On a regional basis, small business lending rose in eight of the 10 largest states in March compared to the month previous. When measured on an annual basis, lending activity was up in seven of the 10 largest states. However, the environment for small business lending may be softening due to tighter credit conditions and a decrease in hiring and capex plans. According to the National Federation of Independent Business (NFIB), while only 2% of small business owners report that their borrowing needs are not satisfied, the share of small business owners reporting that loans are harder to obtain than they were three months ago rose to its highest point in more than a decade. 

Delinquencies and defaults both rose in March compared to the month previous, with all 10 of the largest states experiencing increases in delinquencies and nine of the 10 experiencing increases in defaults. Annually, defaults rose in every industry, led by transportation and finance. The rising delinquencies and defaults may reflect the tightening credit conditions, which could be attributed to several high-profile bank failures and concerns about the health of the broader banking system. With inflation running at 4-5%, the Federal Reserve may face a dilemma of whether to slowly raise interest rates to bring inflation back to acceptable levels, even if it weakens the balance sheets of some small and mid-sized banks, or keep rates where they are and hope that inflation continues to cool. Either way, tighter credit conditions are likely on the horizon.

Produced monthly, the Small Business Indices help lenders and businesses track changes in the small business marketplace by providing insights into lending, default, and delinquency trends. To learn more and view the latest reports, check out our Small Business Indices page.