"That's A Bad Cocktail" - Small Business Borrowing Tumbles To 6-Month Lows

Despite The Fed's hype and the market's hope, data released this morning is flashing a big red warning sign that economic growth may soften ahead - borrowing by small U.S. firms dropped to a six-month low in April.

Reuters reports that the Thomson Reuters/PayNet Small Business Lending Index dropped a third straight month in April to 123.1, down 5 percent from last April and the lowest level since October.

Movements in the index typically correspond with changes in gross domestic product growth a quarter or two ahead, which suggest the spike in small business optimism may fade fast just like the rest of the soft data since the election.

 

Reuters also notes a separate barometer of small companies' financial health suggests companies having more trouble paying off old loans. The share of loans more than 30 days past due was 1.7 percent in April, the highest rate in more than four years, PayNet data showed.

"That's a bad cocktail: falling investment and rising loan delinquency," said Bill Phelan, PayNet's chief executive and founder. "It certainly is going in the wrong direction."

Though still well below the crisis-era peak of 4.7 percent, the rise suggests an erosion in financial health that could spell trouble for future borrowing.