Small Business Lending Fell as 2023 Came to a Close
THE EQUIFAX DECEMBER SMALL BUSINESS LENDING INDEX (SBLI) showed that nominal small business lending fell sharply in December, down 12.6% month-over-month, but up slightly to 1.9%, year-over-year. The SBLI three-month moving average hit its lowest reading of the year, down 3.9% month-over-month, but also still up year-over-year to 4.3%.
Meanwhile, the Equifax Small Business Delinquency Index (SBDI) 31-90 Days Past Due ticked up 2 bps to 1.72% in December 2023, while the SBDI 91–180 Days Past Due rose 2 bps to 0.59%. Defaults rose to 2.99%, up seven basis points vs. November 2023.
While nominal small business lending did increase a month prior in November 2023, it appears that elevated interest rates may have taken a toll on Main Street lending. Delinquencies, both short and long-term, were in line with pre-pandemic levels, but are rising slowly and have been up year-over-year since 2022. The Federal Reserve is signaling that rates will hold steady through the first quarter, which will likely keep lending activity subdued in early 2024.
Regional Analysis
Small Business Lending:
Compared to November 2023, annualized lending volumes were up in 26 states, including 5 of the 10 largest states. While Maine, Minnesota and Wisconsin increased 3%, North Dakota and Montana both decreased 3% from last month. Michigan had the biggest drop in lending of the 10 largest states, down 1%, while California increased just under 1%.
Year–over-year, 36 states increased lending with all 10 of the 10 largest states experiencing an increase. Maine and Minnesota increased 22% and 15% respectively, while North Dakota decreased 15% and Montana decreased 8%. Florida and North Carolina led the 10 largest states, both with 5% increases from last year.
Small Business Delinquency and Default:
Defaults increased in every state annually and in 47 states month-over-month. The average increase in default rates was 48%. South Carolina had the smallest increase over last year at 14%, while Georgia had the largest increase at 73%. Georgia and Florida had the highest overall default rates of the 10 largest states, both over 4%.
In 31-90 day delinquency, 39 states (including 8 of the 10 largest states) had an increase in delinquency month-over-month. Additionally, 44 states increased their delinquency rates from last year (including all 10 of the 10 largest states) with the average increase reaching 42 bps. Month-over-month, Nebraska and Maine had the largest delinquency increases, while Arkansas and Rhode Island had modest 10+ bps decreases. Florida (3.2%), Georgia (2.9%), and Nevada (2.7%) have the highest delinquency rates in December 2023, while South Dakota (0.6%) and North Dakota (0.6%) have the lowest.
Industry Analysis
Small Business Lending:
In December 2023, small business lending held steady or rose on a monthly basis in 7 of the 18 tracked industries, led by Health Care and Social Assistance; Administrative and Support and Waste Management; and Construction.
Lending activity weakened on a monthly basis in 10 of the 18 tracked industries, led by Mining, Quarrying, Oil & Gas; Real Estate and Rental and Leasing; and Arts, Entertainment and Recreation.
Compared to December 2022, lending held steady or rose in 13 of the 18 tracked industries, most notably in Arts, Entertainment & Recreation; Educational Services; and Healthcare and Social Assistance. In contrast, lending fell most in Transportation and Warehousing.
Small Business Delinquency and Default:
In December 2023, the annualized Small Business Default Index rose in 17 of the 18 tracked industries vs. November 2023, rising most in the Accommodation and Food Services (+8%), Information (+8%) Educational Services (+7%) industries.
On an annual basis, from December 2022 to December 2023, the Small Business Default Index increased in 17 of 18 industries, led by a triple-digit increase (+176%) in Transportation. Retail Trade (+81%) and Arts, Entertainment, and Recreation (+81%) also had large increases in default rates.
On an annual basis, the 31-90 day Small Business Delinquency Index rose in all tracked industries vs. December 2022, rising most in Transportation (75%). Transportation 31-90 day levels are currently 30 bps (20%) below their all-time highs.
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.