So, sometimes it takes a little while for the popular press to catch up.  I say that because on June 14th, an article ran on msnbc.com talking about, of all things a “Tale of Two Economies”.  Well, if they had seen our blog on May 18, they would have seen that we could have told them that a while ago.  At the time, our data (going as far back as March) was showing there were two distinct sets of economic conditions. In fact, in our view, the big business community was actually thriving, partially at the expense of the small business guy.

On what basis did we make that determination?  Payment deterioration.  We were seeing about a 5x incidence of severe payment delinquency among small businesses as we saw among large businesses.   But to add to that, nearly 60% of all small business delinquent dollars were stretching to severely slow, while less than 10% of the large business delinquencies were going to that extreme.

 The msnbc.com article, based on AP and Reuters contributions,  quoted a survey by the National Federation of Independent Businesses (NFIB) as having seen a 3^rd straight month of decline in optimism.  The reason?  Weak optimism was due to the weakness of the recovery.  Our position was that opening up lending to small business would be a big help, given the fact that large businesses were putting a strain on small business cash flow by extending their payments to the small business community.    

 June 17th on CNBC’s Squawk Box , Jim Rohr of PNC Bank, indicated that in Q1, almost a billion dollars in small business loans were made.  This was up significantly from the past.  That trend is continuing into the second quarter.  Mr. Rohr feels that this should inject some added optimism into the small business community.  Hopefully he is correct.

We need it.

An interesting dynamic is playing out as the economy begins to get legs.  For example, when you look at the payment behavior of U.S. businesses, there’s a difference in big business trade payments vs. small business.  Our Experian Business Benchmark report shows large businesses are delinquent at a much higher rate.  However,when it comes to  severely delinquent payment, small businesses pay beyond 90 days significantly more often than large businesses.

What does this mean?  Big businesses are leveraging their positions, while small businesses can’t.  Big business balance sheets are flush with cash.  They are using “supplier financing” in the form of extending payments, but not to the point of severe delinquency.  Small businesses, however, need to stay current to ensure a flow of inventory.  Unfortunately, banks reluctance to lend, big business essentially extracting free working capital loans from small business suppliers in the form of extended payments, and suppliers unwillingness to accept slow payments from small businesses can become a slippery slope.  Since small business growth is crucial to the recovery, it may be time to start loosening the reins in order for them to have the funding they need to continue.