Small Business Credit Ratings Edge Up Despite Slowing U.S. Economy
Written by Ken Gaebler
Credit index shows third consecutive quarter of improvement in credit worthiness for the nation's small businesses.
Despite indications of a slowing U.S. economy, small businesses may be more credit worthy now than they have been at any time over the year. Yet there may be trouble on the horizon for many companies' business credit building efforts.
According to the Experian/Moody's Analytics Small Business Credit Index, small businesses experienced a slight uptick in credit worthiness during Q2, to 104.1 from 103.2 in Q1. Although the index declined throughout most of 2011, this is the third consecutive quarter of gains for small businesses.
However, the study also predicts that anticipated decreases in consumer confidence and spending will undermine continued improvements in credit quality in the coming months. "Small businesses continue to get their financial houses in order, but the progress is slow and they remain cautious in expanding their operations," said Mark Zandi, chief economist at Moody's Analytics. "Until small businesses step-up more aggressively, the economy will struggle to grow."
Additionally, there is a wide geographical variance in the financial condition of small businesses. In relatively strong regional economies, consumer spending has improved small business finances; in areas with weak consumer spending, small business credit quality continues to struggle.
Another area of concern is the amount of time it takes small businesses to pay their bills. In Q2, small businesses paid bills an average of 7.4 days beyond contracted terms -- a notable increase from this time last year when small business paid bills in seven days or less.
"Paying bills on time is just as critical for a business as it is for a consumer," said Allen Anderson, president of Experian's Business Information Services. "Delinquent payments have a direct negative impact on risk scores, making it difficult to qualify for the best rates and terms. Having this access to additional credit when needed, can be a business' life line in times of economic distress."
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