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US Risk Climate: Small-Business Credit Conditions Deteriorated in 1Q 2014

Experian SME Index {59c4b5fb-8b9b-4d65-9f1b-0a97b23805c7}_lp-q1-2014-coverThe Experian/Moody’s Analytics Small Business Credit Index report for 2014’s first quarter did not sugarcoat existing conditions, noting in its opening sentence that the year started on a decidedly “sour note.” Still, some analysts believe there is reason to be bullish for a strong second-quarter comeback.

The Index, which measures credit quality for firms with fewer than 100 employees, declined by 0.7 points to 110.5 for the quarter. Perhaps most troubling is that delinquency rates increased, even if just by 0.2 percentage points to 9.8%. Still, analysts hope this was an aberration and leaned on an often-used culprit: bad winter weather. “This should prove temporary, as the broader economy revives from the severe winter weather,” said Mark Zandi, chief economist for Moody’s. “All the preconditions for stronger credit growth and fewer credit problems are in place, including sturdy profits and cash flow, record-low interest rates and low debt services burdens.”

The following are among interesting findings in the latest Experian/Moody’s report:

  • Retail sales growth deteriorated to a worse-than-expected 0.3% loss from 2.9% gain in 2013’s final quarter.
  • The biggest categorical rise within delinquencies took place in the 60- to 90-day bucket.
  • Credit balances declined despite reportedly looser bank lending standards in the first quarter.
  • Construction, known to be generally more likely for delinquency, is improving its image thanks to a notable rise in spending.
  • Transportation companies had the worst delinquency rate (18.1%) among large, significant industries, and the rate continues to falter.
  • Agriculture showed an uptick in delinquencies, albeit from low levels.
  • The gap between the best- and worst-performing US states is widening.
  • Florida, again, topped the worst-performers list.
  • Utah and other Mountain-West states reported the lowest delinquency rates.
  • California and Texas were among the best-performing, high-population states.

Courtesy Brian Shappell, CBA, CICP, National Association of Credit Management (NACM) staff writer

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