Lending activity reaches 23-month high

August 16, 2017

Small-business lending was fast and furious in June.

Based on the rate of unemployment in America, combined with the 1 million jobs added to the economy since January, business has most definitely picked up in the U.S. Aspiring entrepreneurs are cashing in by borrowing at a pace that hasn't been seen in quite some time, according to newly released figures.

In June, small-business borrowing hit a two-year high on the Thomson Reuters/PayNet Small Business Lending Index, reaching a measure of 139.9. That's the highest figure reached since July 2015 and a full point higher than May's reading, even after it was up upwardly revised to 138.3.

Borrowing virtually unchanged on year-over-year basis
While this is an encouraging development and bodes well for future economic growth, the borrowing environment has room for improvement, PayNet founder Bill Phelan noted. Phelan told Reuters he believes the sluggish trend stems in part from political instability on Capitol Hill.

"It really tells me they are still seeing a lot of uncertainty from policy," Phelan explained. "If you don't know what policies are going to be, you are not going to put money to work."

Women business owners, in particular, are hedging their bets, even though they want to expand their companies. Approximately 33 percent of women say they hope to hire more workers before the year is out, according to the latest survey conducted by the National Association of Women Business Owners. However, 80 percent of these same respondents said they don't intend to borrow money in the second half of 2017, reluctant to take on any more debt than they already have.

"Food and accommodations fueled the uptick in borrowing in June."

Nevertheless, small-business borrowing did indeed reach a 24-month high in June, fueled by the food services and accommodations industries. Phelan referenced that combined, these industries increased their rate of borrowing by approximately 5.5 percent on a year-over-year basis, according to Reuters. The rate decreased substantially in the health care sector, though – down 12 percent – offsetting the increases evident in the hospitality sector.

Increased hotel development underway
The hotel industry is in the midst of a bit of a growth spurt, as occupancy rates are quite high. This has caused hoteliers to increase construction activity to make more booking options available. According to commercial real estate firm CoStar, roughly 49,000 new hotel rooms opened up nationwide in 2016 and an additional 100,000 are expected to be completed within the next two years.

Even though the rate of borrowing is on par with this time last year, the financial well-being of businesses suggests that activity could intensify. In June, only 1.6 percent of loans were more than 30 days past due and thus delinquent, Reuters reported from PayNet data. That's down slightly from roughly 1.7 percent in May.

Growth Capital has been in the small-business lending business since 1982 and has been an SBA 504 lender for a decade. SBA 504 loans promote job creation and are available to entrepreneurs in virtually every industry. For more on the SBA 504 Loan Program, click here.