Small businesses are borrowing at pre-recession levels--should you follow everyone else to the bank?
It’s been a long road to recovery, but it looks like small businesses are finally waving goodbye to the Great Recession--and saying hello to cash flows.
In December, more small businesses took out loans than they had in a given month since March 2007, before the economy took a dive, according to the Thomson Reuters/PayNet Small Business Lending Index (SBLI). The report measures the volume of monthly loans and leases to small businesses, which rose 5 percent over last year, says PayNet.
Thanks largely to the healing economy, banks have been loosening their grip on lending restrictions for some time. In the U.S. and Europe, banks have relaxed the criteria for businesses to get lines of credit and loosened their lending standards throughout 2013, according to a new report by the U.S. Office of the Comptroller of the Currency.
Not only is increased borrowing in itself a sign of economic improvement, it also holds that when companies have more capital to invest, business expansion and job creation could pick up. "Because small businesses generally respond to changes in economic conditions more rapidly than larger businesses do, the SBLI serves as a leading indicator of the economy," notes PayNet.
Still, the whole picture isn't rosy. Fewer commercial lenders reported small businesses being late on loan payments than at the height of the recession. However, delinquencies are by no means barreling down to zero. PayNet determined that 1.47 percent of businesses were 31 to 180 days delinquent in December--up from 1.46 percent in November.
One thing’s always true regardless of the state of the economy: If you’re considering taking out a loan, be well prepared, and have a back-up plan.