The Experian/Moody’s Analytics Small Business Credit Index has positive news for small businesses. The Credit Index for the fourth quarter of 2014 was released this morning. And for the third consecutive quarter, the Index has gone up, reaching a post-recession high. The positive news is a reflection of the following:
- More plans to invest – More small firms are planning to invest (i.e., buy things, hire, and give raises) in the next three to six months. “Small-business owners are bullish on their sales prospects, and the share of small companies that feel now is a good time to expand also hit a post-recession high,” noted the Experian/Moody’s report.
- A stronger job market – “Gains are coming broadly across industries and wage tiers. At least some of this additional expendable cash will make its way to small businesses, meaning additional short-term improvements are likely,” according to the report.
- Lower delinquency rates – Most industries showed an improvement in delinquency rates. Delinquency rates are still not at optimal levels, but according to the report, “Over the past year, businesses have reduced the number of days they paid their bills past due by more than a day, or 19.4 percent, and have seen the average commercial risk score rise 3.1 percent ….”
- Fewer bankruptcy filings – The report noted that “bankruptcy rates have dropped significantly, with 10.9 percent fewer businesses filing.”
- Stronger consumer spending – Overall the economy is showing signs of stronger consumer spending, some of which should flow to small businesses. That’s due to lower energy prices and higher employment, and is based on figures from the Bureau of Economic Analysis, according to the report.
The Index and accompanying report was developed by Experian and Moody’s Analytics to measure small business credit conditions. It covers businesses with fewer than 100 employees. Each quarter the Index reports the overall results in a points score.
Between early 2010 and the end of 2014, the Small Business Credit Index has leaped from 100 to almost 117 points. See the chart above.
The Index analyzes a series of metrics connected to small business credit conditions including a risk score, “days beyond terms” score, bankruptcy rate and delinquency rate. Data is collected by state and region and also by industry. The Index also provides an interactive map so you can drill down into specific industries and regions.
The data that contributes to the Index and accompanying report comes from a variety of sources. “The delinquency rates, the ‘days beyond terms,’ the risk score and bankruptcy rates — all come from Experian’s Business Credit Data Base. This represents data from virtually all small businesses in the United States,” said Experian spokesman Jordan Takeyama. The macroeconomic data, including housing market data and supplemental surveys, is provided by Moody’s, he added.
Experian, with $4.8 billion in revenues last fiscal year, provides credit reporting and helps businesses to manage credit risk, prevent fraud, and automate decision making. Moody’s Analytics is an independent provider of economic forecasting. The full report can be found here.
Chart: Experian/Moody’s Small Business Credit Index (remixed)