Small Biz Lending Shrinks as Owners Grow Cautious

Lending to small businesses is shrinking as company owners grow more pessimistic about the economy.

A study released Friday by PayNet, a research firm that tracks loans to small business, shows that lending fell 2 percent in April after a 3 percent drop in March. The Thomson Reuters/PayNet Small Business Lending Index fell to 94.1 in April from the previous month's 98.5. It was at 110.5 in December.

The report comes a day after payroll company ADP said the pace of hiring by the smallest businesses, those with fewer than 50 employees, slowed in May. Both reports show that company owners are increasingly reluctant to hire or expand in an uncertain economy. Other reports, including the monthly survey of small business owners by the National Federation of Independent Business, have also shown that companies aren't confident enough to take on debt or new employees.

PayNet bases its report on new commercial loans and leases granted to small businesses in its database. It says the strong reading in its index at the end of 2011 likely was due to companies that were buying and leasing equipment to take advantage of tax deductions that expired Dec. 31.

Dun & Bradstreet Credibility Corp., a credit reporting service for businesses, has also reported a slowdown in lending to small businesses. The company and Pepperdine University surveyed nearly 6,000 companies during the first quarter. Among businesses with revenue under $5 million, 64 percent said difficulty in getting financing has limited their ability to grow. Fifty-five percent said that was restricting their hiring plans.

Dun & Bradstreet has reported that banks are becoming more stringent in their lending requirements for small businesses.

The PayNet report did have some good news: Loan delinquencies fell during April. The number of loans that were less than 90 days past due fell to 1.3 percent from 1.4 percent. The number of loans more than 90 days past due fell to 0.35 percent from 0.36 percent.

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