Market Overview

Main Street Remains in Expansion Mode in Q2, According to PayNet

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U.S. Private Business Lending Continues Trend of Increased
Investment in the Midst of Strong Financial Health

The latest Quarterly
Credit Outlook
from PayNet,
the leading provider of small business credit data and analysis, shows
Main Street closing Q2 2018 with modest growth and strong financials.
The Thomson
Reuters / PayNet Small Business Lending Index
(SBLI) seasonally
adjusted originations decreased 8% from 155.6 in May 2018 to 142.6 in
June 2018, and the 3-month rolling average edged down. However, compared
to the same month one year ago, the index is up 2%, marking the ninth
consecutive monthly increase on a year-over-year basis. Similarly, the
3-month moving average is up nearly 10% compared to a year ago.

"While a modest year-over-year increase is perhaps less exciting than
the double-digit growth we saw earlier this year, it is a sign that
business owners are avoiding irrational exuberance and embracing a more
sustainable growth trajectory," said PayNet President William Phelan.
"At the same time, financial health remains at near pristine levels,
indicating strong financial capacity for future growth. Modest growth
and strong financials suggest that the current expansion remains on
solid footing."

The expansion phase looks intact in Q2 2018, and the SBLI remains above
140 for the second consecutive quarter. Compared with June last year,
most industries showed solid investment support, led by Transportation
and Warehousing (+17%), Mining (+13%) and Agriculture (+7%). Only three
industry sectors showed year-over-year weakness, including Accommodation
and Food Services (-10%), Information Services (-7%) and Professional
Services (-2%). Geographically, expansion is becoming more broad-based
as each of the ten largest states experienced growth over the prior
year, led by Texas (13%), North Carolina (12%) and Illinois (9%).

The Thomson
Reuters/PayNet Small Business Delinquency Index
(SBDI) showing loans
31-90 days past due held steady at 1.41% from May to June 2018.
Year-over-year, the delinquency rate increased by nine basis points, and
most large industries saw delinquencies rise. One major exception was
Transportation (-56bp Y/Y), where year-over-year delinquencies have
fallen by double-digits for 10 consecutive months. Delinquencies rose in
six of the ten largest states compared with June 2017, led by Georgia
(+26bp Y/Y). However, delinquency levels remain at least 145 basis
points below their historic peaks across all ten largest states.

Compared with May 2018, the Thomson
Reuters/PayNet Small Business Default Index
(SBDFI) fell three basis
points to 1.81% in June, its lowest level since September 2016. The
SBDFI fell six basis points compared to a year ago, its sixth straight
annual decline. Compared to a year ago, defaults rose in a third of the
major industries, led by Information Services (+90bp Y/Y). Notably,
Mining (-158bp Y/Y) and Transportation & Warehousing (-142bp Y/Y) posted
triple-digit declines, while Agriculture defaults also fell (-9bp Y/Y).
On an annual basis, four of the ten largest states experienced an
increase in defaults in June, led by Georgia (+23bp Y/Y) and North
Carolina (+18bp Y/Y). During that same timeframe, Texas (-34bp Y/Y) and
New York (-15bp Y/Y) saw defaults decline.

"Main Street has undertaken a clear mindset shift in the last year,
resulting in record levels of investment and an increased willingness to
take risks," added Phelan. "While the run of double-digit gains in
lending activity appears to have subsided, the fact that most industry
groups continue to expand is indicative of a broad-based strengthening
of the Main Street economy. With credit risk remaining subdued by
historical standards, we expect Main Street businesses to continue
serving as the engine for economic growth in the months ahead."

About PayNet

PayNet,
Inc.,
is the leading provider of credit ratings on small businesses
enabling lenders to manage credit risk, grow earning assets and operate
credit at lower cost. PayNet maintains the largest proprietary database
of small business loans, leases and lines of credit encompassing over 24
million contracts worth over $1.6 Trillion. Using state-of-the-art
analytics, PayNet converts raw data into real-time marketing
intelligence and predictive information that subscribing lenders use to
make informed small business financial decisions and improve their
business strategy. For more information visit www.paynet.com.

Thomson Reuters/PayNet Small Business Lending
Index (SBLI)

The Small Business Lending Index (SBLI) is based on new commercial loan
and lease originations by major U.S. lenders in PayNet's proprietary
database. This index measures the volume of loans to small businesses
normalized to January 2005. Small businesses generally respond to
changes in economic conditions more rapidly than do larger businesses,
so this statistic is a leading indicator of the economy and predicts
changes in GDP between 2-5 months.

Thomson Reuters/PayNet Small Business
Delinquency Index (SBDI)

The Small Business Delinquency Index (SBDI) measures the financial
stress of small businesses with $1mm or less in credit outstanding.

PayNet Small Business Default Index (SBDFI)

The PayNet Small Business Default Index (SBDFI) measures small business
defaults and signals insolvency across multiple sectors of the economy
at the national, state and industry levels. Default is a point-in-time
measurement of borrowers that have failed to remain current and as such
is a vital piece of information to assess risk exposure and evaluate the
health of the overall economy.

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