COSTA MESA, Calif.—Small businesses with fewer than 100 employees saw the downward path of their delinquencies interrupted in the fourth quarter, according to a new report.
Delinquencies among small businesses rose across three of the four stages tracked in the fourth quarter, according to Experian/Moody’s Analytics Q4 2017 Main Street Report.
“Only the most severe, 91+ days past due (DPD), category saw delinquencies decline,” the report stated. “Though the increase in delinquencies was broad-based in DPD categories, it was slight, pushing total delinquencies only to 9.6% from 9.4%.
Bankruptcies among small businesses continued to rise in the fourth quarter, making 2017 a full year in which bankruptcies increased every quarter, the report explained.
“Taken alone, this isn’t good news, but bankruptcies are coming off historical lows. So rising bankruptcies are a sign that creative destruction is at work and that activity is picking up. Bankruptcies would need to rise to levels not seen in several years for this to become a point of concern. This is a metric to watch carefully, however, to ensure that the upward trend doesn’t pick up steam, but rather rises gradually as small-business activity rises,” the report stated.
Balance growth is the primary reason for the outlook in small-business credit markets becoming positive this quarter, the report noted.
“But the initial look at the balance numbers must be taken with a grain of salt. In the fourth quarter, balances rose 11.7% year-over-year, but new pre-existing businesses entered the data. Looking at this number alone is enough to set heads spinning, but looking to loans issued by the Small Business Administration (SBA), growth was nearly 17% for the fourth quarter (first fiscal quarter for the SBA) between the 504 and 7(a) portfolios,” the report said. “So, there is support for this number. Taking a closer look, it seems that this balance growth comes mostly from the growth in average balance per small business. This growth came in 6.4% for the quarter, putting average balances at just over $21,000.”
Utilization rates were lower for the quarter, as businesses that came back to, or entered, credit markets used less of their available credit than businesses that had accessed credit previously. This trend helps to strengthen the argument for upbeat small-business conditions, as businesses are taking a measured and reasonable approach to credit utilization, the report stated.
“We will be looking for utilization to rise as conditions continue to loosen in the small-business credit segment,” the report concluded.