Higher Interest Rates: Coming Soon to Your Small Biz?

Date: August 07, 2015

Related Content: Analysis Money Loans National

Small businesses are borrowing more than ever before. Why that might be bad news.

Small biz borrowing is at its peak. In fact, it’s the highest it has been in the 10-year history of the Thomson Reuters/PayNet Small Business Lending Index, Reuters reported.

In June the rate climbed to 143.3, up from 131 in May. That’s 19 percent higher than just a year ago.

So what does that mean for small biz?

“Job openings are going to be harder to fill,” said PayNet founder Bill Phelan in the article. Companies “will have to raise compensation to attract workers.”

And looking beyond payroll, high borrowing rates could be a step toward the Federal Reserve raising interest rates for the first time in almost 10 years. For the last six and a half years, interest rates have remained close to zero. But Fed officials have been waiting for an opportunity to raise them—though it said it would need to see “some further improvement in the labor market” before raising rates, Reuters reported.

The small business borrowing index has historically tracked ahead of GDP growth by two to five months, and is a good predictor of capital spending and job growth, Phelan said.

Meanwhile, the NFIB Small Business Optimism Index took a nosedive 4.2 points, down to 94.1 in June.

The bright side, though, is that the delinquency rate on loans more than 30 days past due ticked down in June to 1.5 percent, PayNet data shows. This suggests that the increase in borrowing by small businesses has not come at the expense of their financial health.

Read the free NFIB e-book Small Business Guide to Getting a Loan.

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