Hurricane Sandy, last year’s Midwest drought and cuts in government spending have all led to deterioration in small business credit quality and a rise in delinquent debt.
According to Experian/Moody’s Analytics Small Business Credit Index released Wednesday, small firms struggled to pay down delinquent debt in the fourth quarter of 2012.
Balances less than 60 days past due rose nearly 20% in the quarter, overshadowing a slight decline in those considered severely delinquent, which is defined as more than 90 days past due, Experian said.
Additionally, nearly all of the increase seen in delinquent debt was a result of firms falling behind on payments on which they were previously current, according to the index.
Findings from the report also showed that small business credit quality deteriorated considerably in the fourth quarter, due to a rise in delinquent debt and a slowdown in personal income growth pulling retail sales lower and hurting small business 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. “Small businesses continue to struggle to meet their financial obligations.”
Still, Zandi said it is encouraging that credit appears to be growing again for the first time since the recession.
“More freely flowing credit to small businesses should support more investment and hiring and reinforce the broader economic recovery,” Zandi said.
