Declining credit balances and rising delinquencies set back small-business credit conditions in Q1

Experian, the leading global information services company, has announced that following a full year of steady improvement, small-business credit conditions stumbled during the first three months of 2014. Findings from the report showed that despite significant growth over the past two years, credit balances declined during the first quarter of 2014, dropping 1.2% from the previous quarter. According to the Q1 2014 Experian/Moody’s Analytics Small Business Credit Index, the setback in credit balances was fueled in part by unusually harsh winter conditions, which also triggered the rise in delinquency rates.

Mark Zandi, chief economist for Moody’s Analytics, said: “The improvement in small-business credit conditions paused early this year. However, this should prove temporary, as the broader economy revives from the severe winter weather. All the preconditions for stronger credit growth and fewer credit problems are in place, including sturdy profits and cashflow, record-low interest rates and low debt service burdens.”

Joel Pruis, Experian’s senior business consultant, said: “Given the impact the rough winter season had on small-business revenues, the drop-off in credit balances can almost assuredly be attributed to a combination of larger creditors limiting business-to-business credit transactions and small businesses being more reluctant to take on debt. With that said, as we move further away from the cold, wintry season, we should expect to see the growth rate for credit balances normalize as consumer spending picks up and small businesses feel more comfortable making credit-based purchases.”

Additionally, the report showed that the uptick in delinquency rates was seen across all buckets, though the most noticeable rise was in the 60- to 90-day range. This is an indication that small businesses have had trouble paying down balances only recently, as longer-standing debt would have resulted in higher delinquency beyond a two- to three-month window.

From a regional perspective, the gap between the best-performing and the worst-performing states for business health continued to widen. Utah, which has held the top spot among states in every quarter since the end of 2009, has not had its share of past-due balances exceed 2% since tracking began. Conversely, Florida, among the worst-performing states, had 11 of its 22 metropolitan areas in the bottom 10% of business credit performance.

Joel continued: “The housing collapse certainly had a significant impact on our nation’s economy overall, making it difficult for those companies in the hardest-hit areas to stay on top of their business credit performance. While the current landscape continues to look gloomy, there is reason for optimism. A recovering housing market and increasing population densities are enabling businesses in those areas to start paying down delinquent debt. We should see the gap between the top and bottom states close in the coming years.”

New interactive map shows business credit health at the state and metropolitan-area levels

For a visual representation of how states and metropolitan areas are performing in four key business credit health categories, including risk score, number of days businesses pay their bills past due, delinquency rates and bankruptcy rates, visit the new interactive business information map. The map includes performance during the most recent quarter, year-over-year comparisons and industry-level analysis.

Download Q1 2014 Experian/Moody’s Analytics Small Business Credit Index here