NEW YORK (AP) — Lending to small business is slowing, a sign that companies are losing confidence in the economy.
A study released Tuesday by PayNet, a research firm that tracks loans to small business, shows that lending fell 3 percent in March.
The Thomson Reuters/PayNet Small Business Lending Index was at 98.5 in March, down from a revised 101.8 in February. The index had reached 110.5 in December, when companies were rushing to acquire equipment before the expiration of tax deductions at the end of 2011. PayNet’s analysis shows that lending is up 10 percent from a year ago, but it’s also down to the level where it was in 2005.
The drop in the index is in line with other economic reports that have pointed to a slowing of the economy. On Friday, the government said the economy as measured by the gross domestic product grew at an annual rate of 2.2 percent in the first quarter, down from 3 percent in the final three months of 2011. On Monday, the Commerce Department reported that consumer spending rose in March, but at a slower rate than in February.
Many companies have been hesitant to borrow since the recession because they have been uncertain about the economy. They want to be sure that the economy and their sales are growing solidly before they take on debt. The recent reports are likely to make them even more cautious.
PayNet forecast that “uncertainty may be the prevailing condition until the results of the November election.”
William Phelan, president of PayNet, was taken aback by the found the latest index reading because companies could be borrowing at interest rates that remain at record lows.
“This is particularly striking given the lowest credit risk since 2005 and an outlook for low risk through year-end 2012,” Phelan said.
PayNet bases its index on new commercial loans and leases granted to small businesses in its database.