Smallest US firms start borrowing

US Business Recovery

The smallest of small businesses in America are what led the wider economy into recession on the last two occasions, but these tiny enterprises are also considered to be the most important part of an overall recovery.

According to a new study, America's best hope for job creation has shown signs of improved confidence and financial health.

The examination of loan, lease and line of credit activity conducted by PayNet Inc, which provides risk management tools to the commercial lending industry, found that US businesses with less than $100,000 in outstanding debts began borrowing again cautiously this spring to invest in their businesses - a trend that continued through the end of the study period in September.

Historically small firms have taken economies into and out of recession

The research, conducted on behalf of Reuters, found that financing originations among the "microbusinesses" were no longer falling faster than those of larger-sized small businesses - those with borrowings over $100,000.

William Phelan, the president of PayNet, said: "This looks like an inflection point.

"These little businesses are a leading indicator and the signals they're sending are improving."

Historically it has been these small organizations that have taken economies into, and then out of, recession.

Take the recession at the start of this decade for instance. Delinquencies by businesses with less than $250,000 in borrowings peaked in January and February of 2001, just as the downturn was officially beginning, according to PayNet's analysis.

The dangers of a "W"-shaped recession

Delinquencies by businesses with borrowings of between $250,000 and $1 million did not peak until January 2002 - months after the recession officially ended. And delinquencies by even bigger borrowers peaked only in March 2003 - more than a year into the rebound, as reported by Reuters.

The signs suggesting the US economy is actually emerging from recession comes after President Obama recently warned of the dangers of a "W"-shaped recession.

Much of the recovery up to this point has been driven by the government's economic stimulus fund of almost $800 billion. It is now vitally important that the next stages of recovery are sustainable in that they come from authentic demand from both consumers and private industry.

Tiny enterprises throughout the US are widely regarded as the job-creating engines of the economy, so when the country's biggest finance names - including Citigroup, J.P. Morgan and Goldman Sachs Group Inc - announced plans to boost small business lending, license for optimism is granted.

Related Articles:

Like this article? Get the RSS feed: