May 10, 2013 Walt Wojciechowski
Main street received a boost this week as lenders across the country indicated small business lending may increase in the coming months, a sign that commercial credit reports are strong overall. According to a FICO survey, 62 percent of loan providers said the credit supply to small companies over the next six months should meet demand. Also, 89 percent said small business loan applications will hold firm or increase during that same period.
The economic outlook appears to be strengthening for risk managers as more banks are confident small businesses can honor their loan agreements. Almost eight in 10 respondents to the FICO survey said the delinquency rate on small business loans may shrink in the coming months, lowering debt collection activity. The source indicated that the belief that default rates will decrease is one of the most optimistic forecasts the survey has provided in its short three-year history. Alternative lenders may see this as an opportunity to capitalize as business owners look to take out more loans.
"In the past, the banking professionals we survey haven't been as optimistic about credit for small businesses as they have been for other types of lending. The upbeat sentiment makes me think it's possible that we'll see small businesses picking up the pace of investing and hiring in the months ahead," said Dr. Andrew Jennings, chief analytics officer at FICO.
Survey respondents backed up Jennings' belief that small businesses are set to invest and expand, as 70 percent said they believe startups will increase credit lines in the next six months. This could mean that small firms may boost the level of national employment.
Overall credit to mom and pop shops is expected to spike as well, with 52 percent of respondents saying the aggregate amount of outstanding small business loans should increase in the next six months. In last quarter's survey, just 42 percent of respondents agreed with that sentiment.
European markets still struggle
Although confidence is high in the United States, risk managers in Europe are more reserved with their predictions for the coming months. Just 41 percent of European bankers believe small firms will attempt to increase credit options this year, according to a separate FICO survey conducted earlier in the month. Also, just 29 percent expect an jump in small business credit to come to fruition by September.
The disparity between the European and American outlooks is not unexpected as the U.S. is in the midst of economic recovery while European markets are still largely affected by financial debacles such as the recent economic decline in Cyprus.