Small Business Indices: Show the Effects of Tighter Credit Conditions test2

In July 2023, small business lending and financial stress exhibited distinct regional and industry-based trends. As we look at the Equifax Small Business Lending Index (SBLI) and the Equifax Small Business Delinquency Index (SBDI), we gain insights into the challenges and opportunities faced by Main Street businesses across the United States. This analysis reveals noteworthy developments in:

•  lending activity, 

• delinquencies, 

• and defaults.

 All which set against the backdrop of a shifting economic landscape.

Equifax Small Business Lending Index (SBLI)

Small business lending saw fluctuations in various states. Georgia, Florida, and Texas are experiencing monthly increases. However, Ohio and California faced declines. On an annual basis, lending activity generally showed growth.  However, California recorded a slight decrease.

These trends attribute to various factors. These include the Federal Reserve's efforts to slow inflation, tighter lending standards, and higher borrowing costs. As a result, banks have scaled back their lending activities. Small businesses grapple with increased uncertainty.

Among the 18 industries tracked, small business lending increased in 10 sectors, with the following leading the way:

• educational services

• mining

• wholesale trade 

• health care

• social assistance

Information, finance and insurance, and agriculture experienced monthly declines.

Year-over-year comparisons revealed notable increases in arts, entertainment and recreation, and education. Transportation and warehousing faced its 15th consecutive annual decline. These industry-specific lending trends reflect the broader economic context and changing business dynamics.

Economic context

The Equifax SBLI declined by 4.5% in July. The SBLI mirrored a tightening of lending standards in response to inflation concerns. This decline aligns with other indicators, such as the Federal Reserve’s Senior Loan Officer Opinion Survey and the ELFA Monthly Leasing and Finance Index, suggesting that lending may continue to decelerate.

While the economy has thus far avoided recession fears thanks to a robust labor market and resilient consumer spending, Main Street businesses are adopting a more cautious "risk-off" posture. This shift is driven by higher borrowing costs and ongoing economic uncertainty, fueled by the Federal Reserve's policies.

Equifax Small Business Delinquency Index (SBDI)

The Equifax Small Business Delinquency Index revealed increases in delinquencies and defaults. Delinquencies in the 31–90 days past due category rose by 2 basis points in July. These delinquencies were 39 basis points above the year-ago level. The 91–180 days past due category increased by 2 basis points and was up 15 basis points year-on-year. Defaults surged by 11 basis points in July and were 90 basis points above the year-ago level.

Delinquencies increased in eight of the ten largest states. Georgia and North Carolina experienced the most significant monthly increases. On an annual basis, delinquencies rose across all ten states, led by Florida.

Defaults also increased in all ten of the largest states in July. Georgia and Michigan had the highest monthly increases, while Texas, Florida, and California experienced substantial year-on-year increases.

Moreover, delinquencies and defaults were widespread among industries. Transportation saw the most significant monthly increase in delinquencies, and it also led to year-over-year delinquency increases. Defaults increased in 16 of the 18 industries, with transportation and retail experiencing the most significant monthly spikes.

Economic context

The worsening trend in the Equifax Small Business Delinquency Index and Small Business Default Index has been ongoing for over a year. This broad-based deterioration is a cause for concern, particularly in the transportation and warehousing sector, as it often mirrors overall economic conditions.

Other data sources, such as the equipment leasing and finance association and NFIB's sentiment survey, corroborate these findings. Small business owners' sales expectations remain subdued, indicating a sense of pessimism about future business conditions.

Everything considered

As we navigate the complex economic landscape of 2023, it's evident that small businesses are facing challenges stemming from:

• tightened lending standards, 

• higher borrowing costs, 

• and economic uncertainty.

Regional disparities and industry-specific trends provide a nuanced understanding of the struggles and resilience of Main Street businesses. While there may be some moderation in delinquency rate increases, especially outside of the transportation sector, the road ahead remains uncertain for small businesses as they continue to grapple with evolving economic conditions. 

Learn more about the Equifax Small Business Lending Index.