Positive Growth in Main Street Lending Despite Tightening Credit Conditions
IN MAY, THE EQUIFAX SMALL BUSINESS LENDING INDEX (SBLI) SHOWED AN INCREASE OF 4.4 POINTS (+3.0%) TO 152.6. Although the month showed positive growth, the SBLI is not keeping pace with inflation and price increases over the past two years. The SBLI three-month average ticked down 0.5 basis points and is now up 3.8% year-over-year (Y/Y). As lending standards continue to tighten and credit availability is predicted to decline for the remainder of the year, banks are preparing for weaker economic growth paired with increasing financial challenges, according to the American Bankers Association June report. SBLI growth has failed to keep pace with inflation.
Concurrently, the Equifax Small Business Delinquency Index (SBDI) and the Small Business Default Index ticked up over the course of the month. SBDI 31-90 Days Past Due increased 4bps in May to 1.63% and is 41bps higher than a year ago. Defaults also rose 5bps, and are now 74bps above last year’s figures.
“The slow growth of the indices, or in the case of SBDI– continuing deterioration, is indicative of rising interest rates, slow economic growth, and increased financial pressure,” said Bill Phelan, Senior Vice President and General Manager at Equifax Commercial. “With the prospect of interest rate hikes resuming later this summer, it will only put additional pressure on small business lending.”
Small business owners are taking action to minimize the direct effects. A recent Wall Street Journal/Vistage survey found more than half of small business owners plan to delay (53%) or reduce (52%) capital spending as trends predict conditions to worsen over the next six months.
On an annual basis, all 18 tracked industries saw a rise in defaults. Transportation & Warehousing showed a rise in defaults, now up to +277bp Y/Y (175%), while experiencing a significant decline in lending, falling -11.7% Y/Y. By state, lending was up in nine of the ten largest states, with only California (-0.4% Y/Y) showing a decrease in year-over-year activity. Delinquencies and defaults rose in all ten of the largest states, with Florida rising in delinquencies (+83bp Y/Y) and defaults (+127bp Y/Y).
“Steady job growth over the last three months offers some optimism,” added Phelan. “But economic indicators continue to show challenges ahead. Business owners should prepare to navigate fluctuations in the coming months to remain financially stable.”
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.