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Funding Roundup: Small Business Borrowing Slows, SBA Reduces Appropriations For 2015 FY

Written by Ken Gaebler
Published: 4/7/2014

SBA announces that positive economic climate will reduce requested federal appropriations by $100M for 2015, while small business borrowing hits a five-month low in February.

The connection between small business borrowing and the state of the U.S. economy is undeniable. During times of economic uncertainty, small business borrowing tanks, either because business owners are putting their growth plans on hold or because banks are tightening up their lending criteria. When the economy improves, small business borrowing increases as owners activate the plans they had put on the backburner.

Small Business Lending Slows Down

At least that's how it's supposed to work.

But in February, small business borrowing declined to a five-month low, despite indications that the economy is experiencing a period of sustained, moderate growth. According to the Thompson Reuters/PayNet Small Business Lending Index, small business borrowing fell to a rating of 110.5 in February, down from 116.5 in January to the lowest level since September.

This follows a Business Journals report that the SBA will request $710 million in federal appropriations for fiscal year 2015, a drop of $100 million from last year's request. The agency's budget is expected to support $25 billion in government-backed loans to small businesses as well as $4 billion in capital from Small Business Investment Companies. The SBA cited an improving U.S. economy and a lower loan default rate as the factors behind this year's decreased appropriations request.

On the surface, the SBA's rosy outlook for the economy and the state of small business borrowing appears to fly in the face of declining borrowing levels. The Thompson Reuters/PayNet Index shows a trend of declining borrowing since the index hit a seven-year high in December.

However, it's important to note that weather-related issues contributed to a weaker economy during Q1 2014. Additionally, the February index showed borrowing levels that were 5 percent higher than February 2013, a signal that the small business economy is relatively strong compared to recent years.

"Small business investment expansion signals moderate GDP growth," said PayNet founder Bill Phelan.

Going forward, it's expected that warmer weather will bring further improvements in small business borrowing and the economy in general, with measurable gains in employment growth, industrial production and retail sales.

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