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Small businesses struggle to pay back debts

Dec 11, 2012 Walt Wojciechowski

Small businesses struggle to pay back debts
Consumer credit has been a topic of much discussion in recent months, as the national economy continues to fight back from the lulls of the Great Recession. Credit risk managers and debt collectors need to pay close attention to the ebb and flow of consumer credit reporting, as this will dictate several decisions.
 One of the common trends of the last year has been gradually improving consumer credit, with delinquencies falling gradually throughout the past several months. This is freeing up debt collectors to seek out the money they are owed, while also empowering credit risk managers to approve more financial deals with businesses and customers alike. Moody's reveals challenges
While consumers have struggled to return to normal credit ratings, small businesses have had the hardest time finding credit and balancing budgets throughout the past several years. Though lenders are beginning to disburse loans at a quicker rate, many entrepreneurs have seen difficult times when trying to clear up outstanding debts. The most recent Experian/Moody's Analytics Small Business Credit Index revealed that the challenges small businesses faced in the third quarter of this year will most likely continue on into 2013. The report revealed that severely delinquent account balances increased in Q3, likely fueled by lower consumer spending. "Small businesses remain under financial pressure, as the broader economy continues to grow slowly and concerns about the nation’s daunting fiscal challenges mount," said Mark Zandi, chief economist at Moody’s Analytics. "Businesses are reluctant to take on new credit, and severely delinquent credit, remains uncomfortably high. It is encouraging, however, that early-stage delinquency is declining and that credit scores are holding up. Credit conditions should improve if the president and Congress are able to reasonably address our fiscal problems." Credit quality among small businesses dropped more than one point in the index, falling from 105.7 in Q2 to 104.1 in the latest study. Moody's noted that delinquency rates have increased 11.4 percent so far this year. Managing risk
Credit risk managers should be sure to keep up with the overall trends in lending and repayments, as several studies indicate that the next quarter will be similarly turbulent to the past several periods. Many analysts believe that, with a little help from policymakers, the economy will post more marked gains in the coming year, though businesses should still approach potential borrowers and vendors with caution.