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Small Business Lending Improves—in Time for the Next Government Shutdown

Small Business Lending Improves—in Time for the Next Government Shutdown

Photograph by Eric Audras/Corbis

The government shutdown threw a wrench into U.S. Small Business Administration lending programs, which have provided government guarantees on about $30 billion in loans in each of the last three years. Because the loans require approval from furloughed agency personnel, many loans couldn’t be funded during the shutdown, which lasted nearly three weeks. SBA loan volumes in the first four weeks of October were down 35 percent from the previous year, according to a report published on Tuesday by Experian (EXPN) and Moody’s Analytics (MCO). The good news, according to the report, is that agency is on track to make up its lost ground by the end of the year.

More good news: An index tracking small business credit quality is at its highest level since Experian and Moody’s started compiling the data at the beginning of 2010. To that end, fewer small business owners are delinquent on loans than at any time during the recovery from the Great Recession, and small businesses are showing greater demand for loans.

Discrepancies among geographical regions exist: In Utah, small businesses’ delinquency rate is 1.1 percent, and a similarly low percentage of Idaho small businesses are past due on loans. Delinquency rates are much higher on the East Coast, where lingering effects from the housing bust and exposure to Europe’s struggling economy have made for a slower recovery.

Of greater concern than the gap between East and West coast small businesses is that the deal to end last month’s government shutdown is only temporary. “Uncertainty poses a greater threat to small firms,” the report notes.  “The deal struck on Oct. 17 to fund the government and avert breaching the debt ceiling only funds the government until January and extends the debt ceiling through February.” In other words, SBA lending could be stopped up again around the same time that Experian and Moody’s expects the agency to clear the backlog from the last shutdown.

Clark is a reporter for Bloomberg Businessweek.

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