Report: Small business credit conditions worsened Q4 2012

The last few months of 2012 may have hurt small businesses, according to new data from the Experian/Moody's Analytics Small Business Credit Index. The report showed that in quarter four 2012 the index fell to 97.3, its second consecutive decline and lowest reading since 2011, giving the small-business credit outlook a poor end to the year.

Data from the report indicates small-business credit conditions worsened during the final months of 2012, as delinquent debt and lower personal income hit entrepreneurs hard. Company leaders are having a hard time paying off current debt, and balances less than 60 days past due shot up 20 percent during the fourth quarter.

"Small-business credit quality weakened at the end of last year, as the Midwest drought, Superstorm Sandy and cuts in government spending weighed on the economy," said Mark Zandi, Moody's Analytics chief economist. "Small businesses continue to struggle to meet their financial obligations. However, it is encouraging that credit appears to be growing again for the first time since the recession. More freely flowing credit to small businesses should support more investment and hiring and reinforce the broader economic recovery."

Many can't pay, but loan approvals up 
Despite many business owners being unable to pay current debts, Biz2Credit recently revealed loan approvals for small companies are up slightly. Approval rates from big banks were up to 15.3 percent in January, the highest number the Biz2Credit Small Business Lending Index has ever recorded. However, small banks still have more impressive lending numbers, with approval rates increasing to 49.9 percent last month. Credit union loan approval dropped once again to 46.9 percent.

"With traditional banks easing credit, the fallout effect is that alternative lenders are getting more requests from lesser qualifier borrowers," said Rohit Arora, Biz2Credit CEO.

Even with credit conditions deteriorating and some entrepreneurs unable to pay off current debts, that doesn't mean the outlook for every business owner is bleak. If you're a company owner with a strong credit history in need of business financing you may find working with a small or mid-sized bank can best suit your specific needs. In addition to approving more loans, such firms can provide more personalized solutions that help business owners like yourself ensure company finances are in order and enterprise interests being taken care of properly. 

Content presented by Bridge Bank, offering flexible, customized solutions for entrepreneurs.

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