Earlier this week, the results of a report were published regarding the overall volume of small business lending in the United States for the month of May. The report, which published the Thomson Reuters/PayNet Small Business Lending Index, showed that small business lending in the US rose almost 10 index points, from 98.6 to 108.4. This 10 point gain basically wiped out the losses incurred in the previous couple of months.

Small Business Lending Year over Year

Year over year from last May, small business lending increased 18 percent. The increase in borrowing has been attributed to lower interest rates and the fact that many small businesses have stronger balance sheets than they did a year ago. This may be due to economic growth. It may also have something to do with the types of businesses that are still around compared to last year or the year before. These businesses survived a tough economic period, so they are likely to be stronger businesses. It’s also likely that many of these businesses have been “bracing themselves” for some other unforeseen economic calamity, which obviously hasn’t happened yet. This may have resulted in many businesses having more cash on hand than they normally would, which would result in stronger looking balance sheets.

What this Means

Normally, jumps in borrowing, whether it be by businesses or consumers, is the result of economic developments or improvements. The numbers are normally a bit delayed, so increases in borrowing in May would likely be the result of something that happened earlier on in the year. This report, however, conflicts slightly with other economic data indicating a drop in consumer confidence and consumer spending.

Separately, Paynet released other data that showed fewer businesses are falling behind on existing debt obligations, which is a good sign for both borrowers and lenders. Loans that were behind on payments by more than 30 days accounted for 1.18% of outstanding business loans. This number is down from 1.28% in April, and down substantially from its high of 4.41% back in May of 2009. If this trend continues, it may result in increased lending and more borrowing capacity in the coming months.