U.S. small business borrowing highest in nearly two years

(Reuters) – Borrowing by small U.S. companies hit a nearly two-year high in June, driven by restaurants and hotels, PayNet Inc said on Tuesday, as businesses invested to meet customer demand.

The Thomson Reuters/PayNet Small Business Lending Index for June rose to 139.9, its highest since July 2015, from an upwardly revised May reading of 138.3.

Small business borrowing is a key barometer of growth because those companies do much of the hiring that drives economic gains.

Still, measured from a year earlier, borrowing was flat, according to the provider of credit ratings on small companies.

“It really tells me they are still seeing a lot of uncertainty from policy,” PayNet founder and Chief Executive Bill Phelan said by phone, referring to the lack of annual growth in borrowing. “If you don’t know what policies are going to be, you are not going to put money to work.”

Turmoil in Washington surrounding U.S. President’s Donald Trump’s six-month-old administration has led investors and businesses to question whether many his proposals will be implemented. Last week Republicans failed to deliver on a campaign promise to overhaul the U.S. healthcare system, and Trump on Monday fired his communications director after just a week on the job.

Borrowing by firms providing food and accommodation rose 5.5 percent from a year earlier, Phelan said. But that growth was offset by declines in other sectors, including a 12 percent drop by healthcare-related companies.

Movements in the index typically correspond with changes in gross domestic product growth a quarter or two ahead. The U.S. economy grew at a 2.6 percent annual pace in the second quarter, more than double the 1.2 percent growth in the first quarter, though wage growth has continued to be sluggish.

A separate barometer of small companies’ financial health suggested companies are finding it easier to pay off old loans. The share of loans more than 30 days past due was 1.67 percent in June, down from 1.69 percent a month earlier, PayNet data showed.

PayNet collects loan information such as originations and delinquencies from more than 325 leading U.S. lenders.

While almost all small businesses require financing at some point, few are using the resources available to them.

This surprising insight comes from a new survey conducted by Fundera, a small business lending marketplace. The report found 80 percent of small business owners have never set foot in their Small Business Administration (SBA) branch, an agency that specifically caters to their needs.

Business Owners Not Paying Attention to the Financial Health of Their Business

Surprisingly, the report found while many small business owners check their personal credit, they seldom review their business credit score.

In specific numbers, 58 percent of respondents said they don’t check their business credit score at all.

What’s more, 34 percent of small business owners said they were “not at all interested” in seeing a free business credit score for their business.

Businesses Borrowing Funds to Grow

That being said, it’s a positive sign that most businesses are seeking loans to grow.

The report found 49 percent of small business owners are seeking working capital. Forty percent said they needed funds to purchase equipment, while 37 percent cited expansion as their primary reason to borrow.

Evidently, small business owners are taking a rather proactive approach when they are applying for funds.

How Owners Are Getting Money to Grow a Small Business

To meet their financial requirements, most small businesses (66 percent) said they opt for the big banks.

A large number of businesses also approach their friends and family to secure funds. According to the report among those who take the traditional route, 66 percent borrow from family. Thirty-six percent said they borrow from friends.

Only 11 percent of surveyed business owners applied for a loan with an online lender.

About the Survey

Fundera and Qualtrics conducted a random survey of 409 small business owners and senior leadership at small businesses to produce this data.