Approved small business loan balances increased 17.8% in the past fiscal year, according to the U.S. Small Business Administration. That contributed to a higher Experian/Moody’s Analytics Small Business Credit Index, which rose from 116.2 to 118.5 from Q2 to Q3 2013. The index measures credit quality for businesses with fewer than 100 employees, and a higher index number translates to lower delinquency rates and higher loan balances.
Experian and Moody’s Analytics came together in 2010 to create the quarterly report on small business credit health in the U.S., and at 118.5 points, the index is the highest it has ever been.
The Small Business Administration’s 7(a) loan program guarantees loans made by participating lenders to startups and existing small businesses. It is the SBA’s primary method for helping such ventures with general business financing, and the 17.8% rise in approved loan balances was part of double-digit growth among outstanding small-business credit balances. At the same time, only 10% of such balances were past due, down 0.7 percentage point from 2012, which indicates the recovery is gaining momentum after small business lending slowed dramatically following the recession.
As lending has accelerated, delinquency rates have continued to decline, with the 30- and 90-day delinquency rates down 0.1 percentage point from the second quarter. Those metrics have improved consistently since the summer of 2011, according to the index, in part because small businesses have worked to reduce labor costs.
Overall, the national outlook for small businesses is uncertain, as the government shutdown in October is expected to hurt gross domestic product, and, by extension, small businesses, in the fourth quarter. With the uncertain future aside, U.S. small business credit has continued along a positive trajectory throughout 2013.
Regional disparities in credit health persist, with small businesses on the East Coast and in Illinois and Alaska continuing to struggle with delinquency and Western states reporting strong credit behaviors. Florida has persistently shown the weakest small-business credit profile in the nation.
If you’re thinking about starting a small business, it’s important to understand how small business credit is different than other types of credit.