Small Business Credit Index Shows Unexpected Improvement

Projections of small businesses struggling for the remainder of 2013 still hold

Despite the threat of heavier tax burdens and sequestration, small-business credit conditions improved significantly during the first quarter of 2013.

According to the latest Experian/Moody’s Analytics report, the Small Business Credit Index climbed 5.7 points in Q1 2013 to 109, up from 104.3 in the previous quarter. Details from the report showed that much of the first quarter improvement was fueled by lower delinquency rates and stronger consumer spending.

“Small-business credit conditions are improving, but only slowly and unevenly across the country,” said Mark Zandi, chief economist at Moody’s Analytics. “Much further progress this year will be difficult given the likely fallout from sizable tax increases and government spending cuts, but conditions are expected to improve next year once these fiscal headwinds begin to fade.”

Findings from the report show that small companies are faring considerably better in cities west of the Mississippi. This is driven in part by a resurgent housing market, while eastern cities have been more directly affected by cuts in government spending and the poor performance of Europe’s economies.

“Small businesses have reduced their levels of payment delinquency, and that is a good sign,” said Dan Meder, vice president of Experian’s Business Information Services. “Near-term pressure on consumer spending may adversely affect cash flow, so small businesses must continue to remain diligent in their payment behavior. By successfully meeting their payment obligations, they avoid negative repercussions on credit availability that could limit growth.”

Regionally, delinquency rates for small businesses in Houston, Texas; Phoenix, Ariz.; and San Diego, Calif., were significantly lower than the U.S. rate in Q1, whereas several major eastern cities are more than double the national average. At the state level, delinquency rates in Arizona, Utah, Colorado, Wyoming and Idaho were significantly lower than the U.S. average.

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