Due to a rise in credit balances and a decrease in delinquencyrates, small business credit quality continued to show significantimprovement in the third quarter.

According to Experian/Moody's Analytics, the Small BusinessCredit Index rose 2.3 points to 118.5, up from 116.2 the previousquarter. This notes the index's third consecutive quarterlyimprovement, and its second consecutive record-breaking mark.

The index measures credit quality at firms with fewer than 100employees.

While total outstanding balances have risen at their fastestrate in two years, delinquency rates have fallen at a consistentpace, the data showed. In the third quarter, only 10%, which is thesmallest percentage since the recovery began, of outstandingsmall business credit balances were past due, down 0.7% sincethe third quarter in 2012.

“Small businesses are getting their finances in order. Lowerdelinquency and stronger credit growth bode well,” said Mark Zandi,chief economist at Moody's Analytics. “It won't be a straight lineup for small businesses, and the recent government shutdown hurt,but their prospects are improving.”

From a regional perspective, the index showed that smallbusinesses in the West continued to have stronger credit profilesthan their Eastern counterparts.

For instance, small businesses in Utah displayed strong creditperformances, as past-due balances for businesses comprised a mere1.1% of their total balances, according to the data. Conversely,small businesses in Florida have shown the weakest creditperformance, as nearly 25% of all balances are paid beyondcontracted terms.

The reduction in past outstanding balances and improved paymentperformance by small businesses has provided them with the abilityto increase credit balances in the third quarter, said Joel Pruis,Experian's senior business consultant.

“Moving forward, it is imperative that small businesses maintainthe discipline demonstrated over the past several quarters,” Pruisadvised. “The ability to build and maintain a strong credit profilewill help them obtain the appropriate funding to uncover new growthopportunities.”