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Small Business Lending on the Rise

Small business lending was strong in May, but the economic recovery remains tenuous.

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Although the U.S. economic recovery remains uneven, there is at least one distinctly positive sign: small business lending reached its highest level of the year this May.

The Thomson Reuters/PayNet Small Business Lending Index, a measure of overall volume of small business financing, rose nearly 10 points from April to May. The rise (from 98.6 points to 108.4) nearly compensated for the decline from the previous four months.

Low interest rates and stronger corporate balance sheets were likely causes for the credit increases, PayNet founder Bill Phelan said in a statement to the press.

Historically, the lending index has been an accurate indicator of economic growth several months later.

"I think it means we have a higher chance of sidestepping another contraction in the economy," Phelan said. But the index increase and Phelan's comments seem to contradict other negative economic trends.

Despite recent decreases, jobless claims remain near their highest point for 2012, and consumer confidence recently dropped, indicating that Americans are more pessimistic about the economy.

According to Reuters/PayNet, the Federal Reserve plans to keep borrowing rates near zero until at least 2014 and are also considering another bond-buying program to bolster the economic recovery.

Last updated: Jul 2, 2012

JOHN MCDERMOTT | Staff Writer

John McDermott is a business and culture reporter whose work has appeared in the Chicago Tribune and Playboy and on AOL.com. He recently moved from Chicago to Brooklyn, New York, to work for Inc.com.




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