Small business lending resumed double-digit growth while credit quality remained strong in October, according to PayNet, a provider of small business credit data and analysis. The Thomson Reuters / PayNet Small Business Lending Index (SBLI) seasonally adjusted originations increased 11% from 133.1 in September to 148.2 in October, reaching its third-highest reading ever. On an annual basis, the index is up 11%. The SBLI three-month moving average edged up in October and is up 9% year-over-year.
“After a pause in September, October has proven to be a return to increased investment and improved credit risk,” said PayNet, Inc., President William Phelan. “September’s mini wake-up call brought to light the reality that good times for lenders and businesses won’t continue forever. In October, booming investment at low risk continued, but the double-digit growth we’ve seen throughout most of 2018 will taper eventually.”
Most industries experienced lending growth on an annual basis in October, led by Transportation & Warehousing (+21.3% Y/Y), Mining (+16.0% Y/Y) and Construction (+7.2% Y/Y). Lending reached an all-time high in two industries: Transportation & Warehousing and Arts, Entertainment & Recreation. However, weakness persisted in select service-sector industries such as Accommodation & Food Services (-14.5% Y/Y), Information (-7.7% Y/Y) and Professional, Scientific & Technical Services (-1.2% Y/Y). Regionally, lending increased across all ten of the largest states on an annual basis for the eighth consecutive month. Lending levels climbed to all-time highs in Illinois (+12.6% Y/Y), Texas (+12.0% Y/Y), Michigan (+11.4% Y/Y) and Pennsylvania (+8.9% Y/Y). Meanwhile, Florida posted its second straight double-digit gain on an annual basis (+10.2% Y/Y), while California (+3.8% Y/Y) saw its strongest year-over-year growth since February 2016.
The Thomson Reuters/PayNet Small Business Delinquency Index (SBDI) 31-90 days past due fell one basis point to 1.41% in October, but remains six basis points above its year-ago level. Delinquencies increased in most industries on an annual basis, including Construction (+17bp Y/Y) and Retail (+6bp Y/Y), though Transportation (-23bp Y/Y) continues to be a notable bright spot, posting its 15th straight decline. Delinquencies rose in seven of the largest states compared to year-ago levels, led by Ohio (+13bp Y/Y), Florida (+12bp Y/Y) and Georgia (+10bp Y/Y). However, Pennsylvania (-25bp Y/Y) posted its fifth consecutive double-digit annual decrease in delinquencies, while delinquencies in Michigan (-6bp Y/Y) declined at the fastest year-over-year pace since August 2017.
Compared to September, the Thomson Reuters/PayNet Small Business Default Index (SBDFI) fell three basis points to 1.81% in October, its sharpest monthly decline in nearly five years. Compared to its year-ago level, the SBDFI decreased three basis points and has consistently fallen on an annual basis throughout 2018. The majority of industries saw defaults decrease on an annual basis in October, including Retail (-15bp Y/Y) which saw its sharpest year-over-year decline in four years. Regionally, five of the ten largest states posted declines, led by Texas (-38bp Y/Y) and Michigan (-18bp Y/Y). Georgia, however, experienced its seventh consecutive double-digit annual increase (+29bp Y/Y). Notably, default levels in all ten of the largest states remain in the bottom half of all respective readings.
“Main Street America appears to be back on track with large jumps in investment at low credit risk,” added Phelan. “While sustained confidence on Main Street should carry healthy levels of small business investment into 2019, growth appears likely to slow as the year progresses given the late stage of the business cycle. Put simply, the boom times can’t continue for much longer, and a more moderate pace of investments, while not as exciting, would be more sustainable.”