Main Street Feeling the Effects and Stress of Economic Uncertainty

SMALL BUSINESS LENDING FELL IN JULY, BUT IT’S STILL AT EQUIVALENT LEVEL TO LAST YEAR AS STRESSORS OF AN UNCERTAIN ECONOMY REMAIN. The Small Business Lending Index (SBLI) once again declined in July, decreasing by 4.5% to 140.8. The downward trend is mirrored in the SBLI 3-month moving average, falling 2.3 points to 147.2, though it remains 3.0% higher than its level a year ago. Tightening of lending standards were influenced by the Federal Reserve’s efforts to curb inflation and small business owners' reduced demand for credit due to higher borrowing costs and continued economic uncertainty.

“A healthy labor market and the resiliency of the U.S. consumer have helped calm economic concerns,” said Bill Phelan, General Manager of the Equifax USIS Commercial business. “But the second half of the year continues to make small business owners cautious as interest rates are expected to remain high through the end of the year.”  

While the SBLI remains just above year-over-year levels, the Small Business Delinquency Index (SBDI) reveals some downward trends in July across nearly every tracked industry. The SBDI 31–90 Days Past Due increased by 2 basis points (bp) to 1.68%, standing 39 bp more than last year. The SBDI 91–180 Days Past Due also increased by 2 bp, reaching 0.50%, with a year-over-year increase of 15 bp. Defaults saw an even more significant rise, increasing by 11 bp to 2.67%, marking a substantial 90 bp increase from last year. The National Federation of Independent Business’ (NFIB) recent sentiment survey and other data show that small business owners remain pessimistic, with low expectations for improved conditions. 

Regional View: 

Regional small business lending increased in seven of the ten largest states in July, with gains in Georgia (+0.9% M/M), Florida (+0.4% M/M), and Texas (+0.3% M/M). On an annual basis, lending activity showed growth in eight of the ten largest states, including Florida at +7.9% Y/Y. However, California was the only large state to experience a decline in lending activity compared to the previous year. 

Delinquencies and defaults rose in eight out of the ten largest states. Delinquencies in Georgia rose to +13bp M/M, while other states saw declines, like Illinois at -7bp M/M. On an annual basis, all ten of the largest states reported an increase in delinquencies. 

Additionally, defaults rose in each of the ten largest states annually, seeing triple digits in Georgia (+169bp Y/Y), Texas (+151bp Y/Y), Florida (+147bp Y/Y), and California (+100bp Y/Y).

Industry View: 

By industry, small business lending increased in 10 of the 18 tracked sectors in July, led by Educational Services (+1.8% M/M). Compared to a year ago, lending activity rose in 14 of the 18 industries, most notably within the Arts, Entertainment & Recreation (+35.6% Y/Y) and Education (+24.6%) where the most significant growth was experienced. However, the Transportation & Warehousing sector continued its 15th consecutive year-over-year decline to -10.5% Y/Y, which creates some concerns given the industry’s close association with overall economic conditions

Delinquencies also rose in four of the six tracked industries in July, with Transportation facing particularly substantial monthly increases at +19bp M/M. On an annual basis, delinquencies climbed in all six tracked industries, once again led by the Transportation sector (+166bp Y/Y). Defaults increased across 16 of the 18 tracked industries in July, with Transportation and Retail experiencing the most significant monthly rises.

“Some sectors continue to show resilience, yet the overarching trends indicate continued concerns and stress as the result of continued economic uncertainty,” continued Phelan. “Small business owners are trying the best they can to navigate a complex financial landscape that is marked by tightening lending standards, high costs and economic conditions — which may persist in the months ahead. Adaptability and sound financial management will be the keys to manage through the uncertainty."

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.