June 1, 2017 / 9:09 AM / 6 months ago

U.S. small business borrowing drops to six-month low

(Reuters) - In a sign that economic growth may soften ahead, borrowing by small U.S. firms dropped to a six-month low in April, data released on Thursday showed.

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. The U.S. economy grew at a 1.2 percent annual pace in the first quarter, though the Atlanta Fed currently projects second-quarter expansion at a brisk 3.8 percent pace.

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.

Healthcare was hit particularly hard, with borrowing falling 14 percent in April as the young Trump administration struggled to deliver on a promise to replace Obamacare with a new health insurance system.

Small business borrowing is a key barometer of growth because small companies tend to do much of the hiring that drives economic gains.

PayNet collects real-time loan information such as originations and delinquencies from more than 325 leading U.S. lenders.

Reporting by Ann Saphir; Editing by Chizu Nomiyama

Our Standards:The Thomson Reuters Trust Principles.
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