Equifax Small Business Indices: Uptick in Lending For Now, But Economic Headwinds May Show Signs of Stress for Main Street

April 28, 2023

SMALL BUSINESS LENDING ROSE for the second consecutive month in February, according to the latest Equifax Small Business Indices, despite ongoing economic headwinds, Main Street remains resilient. The Small Business Lending Index (SBLI) rose 9.3 points (+6.4%) to 154.8, which is up 5.3% year-over-year; similarly, the SBLI three-month moving average ticked up 3.9 points to 143.8, now 1.9% above its year-ago level. 

“Consumer demand has been healthy so far this year, and although consumer spending cooled a bit in February, the most recent Equifax SBLI data suggests small business owners continue to seek out new capital,” said Bill Phelan, Senior Vice President and General Manager at Equifax Commercial. 

However, recent events in the banking industry may potentially create changes on the horizon. The rapid rise in interest rates has weakened bank balance sheets and placed pressure on rate-sensitive depositors. In addition, financial institutions are facing renewed scrutiny from account holders, policymakers and regulators. As a result, lenders may desire to proceed with more caution when considering new loans, and small businesses are typically among the first to feel the effects of a credit tightening cycle. Moving into next month, it’s more likely the data will show a pullback in small business lending to account for increased risk sensitivity. 

The same economic pressures are likely contributing to a slow increase in the Equifax Small Business Delinquency Index (SBDI). The SBDI 31-90 Days Past Due increased four basis points in February to 1.48%, which was 24 basis points above its year-ago level. Delinquencies rose in five of the six tracked industries, led by a sharp increase in Transportation (+13bp M/M and +123bp Y/Y). On the flip side, Agriculture showed a two basis point decline in month-over-month delinquencies. February data also showed a rise in delinquencies in nine of the ten largest states, led by Georgia (+15bp M/M). 

The Small Business Default Index (SBDFI) showed similar increases. In line with its increase in delinquency rates, the state of Georgia saw a 17 point basis point month-over-month increase in defaults, though Illinois experienced the largest increase overall at 20 basis points month-over-month. New York was the only large state in which the default rate was below its year-ago level. From an industry standpoint, Transportation also saw the largest annual default increase along with Finance at +147bp Y/Y and +99bp Y/Y, respectively. 

“Inflation remains a concern for a plurality of small businesses, but by historical standards, Equifax data indicate that small business financial stress remains low,” continued Phelan. “Should economic growth stagnate or recede later this year, small business financial stress might rise more quickly, but for now, portfolios appear to be in relatively good shape.” 

About the Small Business Indices: 

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.

These reports provide considerable value and insights, including: 

  • Potential signs of future economic growth or decline, demand for capital, and business fixed investment across multiple sectors of the economy.

  • An early signal of changes in Growth Domestic Product (GDP).

  • A snapshot of the future to help determine changes in corporate policies or approval criteria when bringing on new business.