Small Business Borrowers Haunted by Polar Vortex and Zombies

There’s been evidence this spring of banks’ renewed interest in small business lending, most recently from the Federal Reserve’s quarterly survey of senior loan officers, which found looser lending standards for companies with less than $50 million in annual sales. But that trend is out of whack with new data from Experian and Moody’s Analytics in which small business credit quality declined over the last six months. What gives?

Financial companies account for only 25 percent of the data used in the Experian/Moody’s report, with the balance of data coming from business-to-business lending. The report detects “a pulling back among larger business-to-business creditors struggling with their own financial problems” and suggests that large retailers—themselves hammered by the long, snowy winter—pulled lines of credit to small business customers. That’s to say nothing of the more immediate chill on sales during the harsh season.

Another possible explanation derives from differences in small business credit by region. Since the financial crisis, business owners in such western states as Utah, Wyoming, and Colorado have recovered more quickly than their East Coast counterparts. Small business owners in Florida—where the housing market has been especially slow to bounce back—are having a harder time paying bills on time, according to Experian/Moody’s.

The Sunshine State also seems to be the victim of zombie small businesses—companies that are weak enough to miss debt payments but strong enough to avoid bankruptcy. As long as the small business living dead remain upright, they will keep eating up sales that might otherwise flow to companies with brighter long-term futures. This, in turn, slows further improvements to overall small business credit quality.

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