Small Business Lending Softens As Delinquency and Default Rates Continue to Rise

November 15, 2023

LENDERS ARE BECOMING MORE CAUTIOUS IN THE FACE OF ELEVATED INTEREST RATES AND THE SLOWING ECONOMY, as reflected in the latest data from the Equifax September Small Business Lending Index (SBLI). This measure of small business lending activity fell 3.8% in September, after rising in August. The 3-month moving average of the nominal SBLI ticked up 0.6% in September though, and sits 1.5% higher than last year, failing to keep pace with inflation. Despite a cloudier near-term outlook for small business lending, loan volumes remained stronger than expected through the end of 2022 and beginning of 2023.  

The Equifax Small Business Delinquency Index (SBDI) 31-90 Days Past Due category increased in September to 1.69% and is now above its level vs. one year ago. Meanwhile, the SBDI 91–180 Days Past Due category experienced another slight uptick to 0.52%, while defaults rose again to 2.79%.

Regional Analysis

Small Business Lending:

In September, small business lending rose in six of the ten largest states, including three that reached historical highs: North Carolina, Michigan and Florida. Meanwhile, lending activity declined in Ohio, California and Georgia. Measured on an annual basis, lending activity improved in nine of the ten largest states, led by Florida, Michigan and North Carolina. California was the only large state to experience an annual decline in lending activity.

Small Business Delinquency:

In September, delinquencies increased in seven of the ten largest states, led by Georgia and Florida, with delinquencies easing in New York and Illinois. On an annual basis, delinquencies increased in nine of the ten of the largest states, led by Florida and easing only in Illinois. Regarding defaults, all ten of the largest states experienced an increase in September, led by Georgia. Defaults rose in all ten states on an annual basis as well, with triple-digit increases in Georgia, Texas and Florida.

Industry Analysis

Small Business Lending: 

  • Small business lending rose on a monthly basis in 10 of 18 tracked industries in September, led by Public Administration and Health Care and Social Assistance which both hit series highs. Lending activity weakened the most in Transportation and Warehousing which continues to slide and is now at its lowest level since 2017. 

  • Compared to a year ago, lending rose in 13 of 18 industries, most notably in Arts & Entertainment & Recreation and Education. In contrast, lending fell in Transportation & Warehousing and Agriculture. 

Small Business Delinquency:

  • Of the six tracked industries in September, delinquencies rose in five of the six tracked industries, and flat for Retail. 

  • Similar to previous months, delinquencies rose for Transportation, where monthly delinquencies have increased by double digits for the last 11 of 12 months. 

  • On an annual basis, delinquencies climbed in all six tracked industries, once again led by a triple-digit increase in Transportation. 

  • Defaults increased in 15 of the 18 tracked industries in September, with sharp increases in Transportation and Information. Mining and Education saw the largest monthly declines. 

  • On an annual basis, defaults rose in all 18 tracked industries, led by Transportation (up 247%) and Retail Trade (up 102%). 

Economic Analysis

In September, the Equifax Small Business Lending Index softened after spiking in August, consistent with a growing sentiment that lenders are becoming more cautious in the face of elevated interest rates and a slowing economy.

“The current economic climate for small business financing is ever-changing, with numerous headwinds, such as fluctuating gas prices, high interest rates, difficulty hiring, and inflation impacting the near term – particularly for the transportation sector,” said Bill Phelan, General Manager of the Equifax U.S. Information Services (USIS) Commercial business. “However, with the Federal Reserve appearing inclined to keep interest rates where they are for the foreseeable future and the potential for rate reductions at the beginning of next year, we’re hopeful that this slow down won’t last long.”

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.