Hurricane Sandy, last year's Midwest drought and cuts ingovernment spending have all led to deterioration in small businesscredit quality and a rise in delinquent debt.

According to Experian/Moody's Analytics Small Business Credit Index releasedWednesday, small firms struggled to pay down delinquent debt in thefourth quarter of 2012.

Balances less than 60 days past due rose nearly 20% in thequarter, overshadowing a slight decline in those consideredseverely delinquent, which is defined as more than 90 days pastdue, Experian said.

Additionally, nearly all of the increase seen in delinquent debtwas a result of firms falling behind on payments on which they werepreviously current, according to the index.

Findings from the report also showed that smallbusiness credit quality deteriorated considerably in the fourthquarter, due to a rise in delinquent debt and a slowdown inpersonal income growth pulling retail sales lower and hurting smallbusiness revenues.

“Small business credit quality weakened at the end of last year,as the Midwest drought, Superstorm Sandy and cuts in government spending weighed on the economy,”said Mark Zandi, chief economist at Moody's Analytics. “Smallbusinesses continue to struggle to meet their financialobligations.”

Still, Zandi said it is encouraging that credit appears to begrowing again for the first time since the recession.

“More freely flowing credit to small businesses should supportmore investment and hiring and reinforce the broader economicrecovery,” Zandi said.