Small Business Credit Insights

Gary Stockton: Experian has just released the Q4 2017 Main Street Report. We partner with Moody's Analytics on this report each quarter, and Derrek Grunfelder-McCrank is the economist who works on the report. We asked him a few questions about the trends that we're seeing in this quarter's data. Gary Stockton:  The latest Main Street Report states that small business credit conditions remain positive. Is there a primary factor that's driving this stability? Derrek G. McCrank: Yeah there certainly is Gary. The primary factor that's driving stability in small business credit is the broader U.S. economy. Right now we have the labor market that's tight. This is resulting in wage increases for consumers as a result. Consumer spending has been reliable. Inflation is starting to pick up in a slow steady manner. On top of it all at the end of last year we just got tax reform. Right now the outlook for small business credit is positive. And that doesn't look set to change anytime soon. Gary Stockton:  and are you seeing greater numbers of small businesses investing in that business by borrowing for equipment purchases? Derrek G. McCrank:  Well Gary while we can't say for certain. The data seems to suggest that this isn't happening to the extent it could just yet. One of the questions in the NFIB's monthly survey is about whether firms are planning capital expenditures in the next three to six months. Since the end of the last recession. We've seen the positive response rate to this question steadily increasing. However it still sits below its long term average. Couple this with tax reform coming so late at the end of last year, and a decent number of firms are likely to have waited until the new year when they could invest in their business with a little more certainty. Gary Stockton: Well historically small businesses been keeping bankruptcy in check, but this quarter we saw it up slightly. Is this a major concern? Derrek G. McCrank: This isn't a cause for concern yet. Though it is something to monitor going forward. In the first quarter of 2017 the small business bankruptcy rate bottomed out, it hi its floor. As the year progressed, the bankruptcy rate moved off of that floor and that appears to be all that happened. In fact I'm hopeful that this might indicate a return to a more dynamic environment for small businesses which I look forward to discussing in a little more detail and our upcoming webinar. But for now, given the state of the economy, I'm optimistic for the state of small business credit. Gary Stockton: On the flip side, the Northeast saw a steep decline in business bankruptcies in Q4. Can you share some insight on what might be driving that? Derrek G. McCrank: Sure, so in the fourth quarter. the Northeast saw declines in its severely delinquent or 90 days past due rate coupled with a slight uptick in its business bankruptcy rate. What happened with business bankruptcies mirrored the trend nationally, so it shouldn't be a cause for concern this year, the declines in the severely delinquent rate were driven by two primary factors - geography and industry, from a geographic point of view, Connecticut, New Hampshire and Maine were the driving forces behind the reductions in severe delinquency, and from an industrial point of view financial services, public administration and the manufacturing industries are credited with declines in severe delinquency. Download the latest report  

According to the Kauffman Foundation business starts in the United States have been on a steady decline for the past four decades, while the cost of education has risen. In fact, as of 2017, outstanding college debt stood at 1.4 trillion dollars. So how does student debt impact business owners who started a business after college? In our latest Business Q&A I ask Andrea Schmalzer about her recent study of business owner student debt. Gary: Andrea why did you to decide to study student debt for small business owners? Andrea: Hi Gary we decided to take a look at student loan debt in regard to small businesses due to the fact that student loan debt has now increased to over one point four trillion dollars. In addition to that, small business creation has been on a downward trend basically since the 1990's. So we decided to take a look and see if student loan debt was impacting new business creation and longevity. Gary: And are there any industries where student debt has seen a significant increase? Andrea: Yes. In the public administration segment, which includes prisons, research laboratories, realtors, state run businesses, we saw an increase of student debt of about 89 percent between the years 2012 and 2017. So right now small business owners are opening their businesses with close to 60 thousand dollars in debt, when back in 2012 it was just over 30 thousand. Gary: And were there any other interesting insights that you saw in the data? Andrea: Actually yes. The biggest finding that we had was that having student loan debt didn't impact business survival. We have in our sample almost 79 percent of small businesses with student loan debt lasting five or more years. And that's compared to about 60 percent survival rate of five or more years for small businesses as a whole. So we're seeing a definite positive trend with small business owners acquiring student debt. To learn more about these insights, download the whitepaper. Download Whitepaper   Help us spread the word! Click To Tweet!  

Experian and Moody’s Analytics just released the latest Experian/Moody’s Analytics Main Street Report for Q4 2017. The report brings deep insight into the overall financial well-being of the small-business landscape, as well as providing commentary around what certain trends mean for credit grantors and the small-business community. The overall outlook for small-business credit is positive. Outstanding balances rose in the fourth quarter, as did the average balance outstanding per business. Delinquency and default rates rose slightly, suggesting that credit conditions have loosened. Continuing strength in the macroeconomy will keep small businesses moving in the near term, along with higher profits from the recently passed tax legislation. Small-business credit will be less certain in the medium to long term as rising wages and tax code changes take a toll. Northeast sees the steepest decline in delinquency The Northeast saw the steepest decline in severe delinquencies in the fourth quarter, and construction was one of the industries responsible for that trend. Many small construction firms have a focus on residential projects, making consumer credit growth an ideal metric to use as a basis for understanding what’s happening and what will happen in the industry. We have published the entire contents of the report in an interactive page, complete with charts and graphs. Download Main Street Report

Andrea Schmalzer is an analytical consultant in the Commercial Data Sciences team here at Experian, and she just completed a study of the mining industry titled "Managing volatility: the unique credit risks of the mining industry", so we did a quick Q&A with Andrea about her research. Gary: Hi Andrea, why did Experian study the mining industry? Have there been any notable changes to this industry in recent years? Andrea: Hi Gary. We decided to study the mining industry in order to evaluate the impact the mining industry has on small businesses that are supporting that industry. Knowing that there will be some volatility as we see shifts in which fossil fuels are predominantly being used. As far as changes go, we have seen a decrease in coal production. Some of this is due to the fact that we had the big boom in natural gas which caused the natural gas prices to decrease substantially. And also just due to the fact that the coal supplies are decreasing overall. Gary: Can you tell us what states driving the bulk of the mining in the United States. Andrea Schmalzer: So Texas is the number one oil and gas producers in the country. As far as natural gas we also had that being mainly produced in Pennsylvania and Oklahoma. For oil, we do see that being produced in North Dakota and California, and as far as coal mining goes that comes from Wyoming, Kentucky and West Virginia. Gary: Andrea what impact has the decrease in natural gas and oil production had on the local small business economy? Andrea: So, North Dakota was one of the most impacted states when the prices of oil dropped because they decided to stop drilling because it wasn't cost effective. So we did see employment drop quite a bit in the oil and gas industry. But overall as a state North Dakota is still under a 3 percent unemployment rate. Some of those folks are now working in retail or grocery stores, gas stations in hopes that new drilling will come up again. For businesses though we do see delinquencies shrinking in the retail segment also in the manufacturing segment. However we do see charge off's increasing for both retail and manufacturing which is one area we need to keep an eye on. Gary: With the falling supply of coal in West Virginia what trends are you seeing in business credit and delinquency? Andrea: Like you said we've seen a large decrease in coal production in West Virginia, most notably in the southern counties of West Virginia. And with that we've seen an increase in unemployment and in some cases an increase in delinquencies. For example the retail and service industries have seen an uptick in delinquencies in southern West Virginia compared to the rest of the state. But we aren't seeing write off's come through yet. So an area to keep an eye on. Also overall in West Virginia we do see higher delinquency rates in the agricultural industry for the coal counties versus non-coal counties. But again, like retail and service we aren't seeing the write the off's come through yet. So definitely an area we need to keep an eye on. Download Whitepaper

Experian has just released the Q3 2017 Experian/Moody's Analytics Main Street report and the overall outlook for small-business credit is stable. The report states outstanding balances on small-business credit declined slightly in the third quarter, continuing a two-year trend. Delinquency and default rates were steady to declining, and business balance sheets continue to improve. Continued improvement in the labor market and economic growth bodes well for credit performance in the short term. Despite the overall optimism, pockets of localized weakness are developing and will warrant observation over the next few quarters. “Small business credit conditions are good and steadily getting better. Businesses are paying on their obligations in an increasingly timely way and remain cautious in their new borrowing. There are some credit problems in different parts of the country in various industries, but they are few and far between.” Mark Zandi, Chief Economist, Moody's Analytics   An expanding economy supports credit performance As small businesses continued to keep credit utilization low, paying down debt, delinquencies overall continued to trend downward. Early-stage delinquency rates improved during the quarter while the 90 days past due (DPD) delinquency rate experienced a slight 5 basis point increase. The most severe delinquency category, 91+ days past due, declined as some distressed credit was charged-off. The decline in late-stage delinquency was offset somewhat by an increase in bankruptcy rates. While the report contained mostly good news, there were a few surprises, including Wyoming, which saw a slight increase in 90-days past due delinquency in mining, construction, transportation and retail, pushing the state’s delinquency rate by almost half a percentage point. We have put the entire contents of the Experian/Moody’s Analytics Main Street Report into an interactive page, complete with dynamic charts.  

Within the span of two weeks, two states in the Southeast - Texas and Florida, have been devastated by two category 5 hurricanes. It has been over a decade since the United States last fell victim to another category 5 hurricane, Katrina, which submerged New Orleans under 20 feet of water and displaced 1.3 million people to find shelter anywhere and everywhere across the U.S. However, within one year, New Orleans would see 66% of its pre-Katrina population return, and sales tax revenue climb to 84% of pre-Katrina levels.The road to recovery will no doubt be arduous, but there is also no doubt that the resilient people of these states are already marching steadfastly on that road. The recovery effort is supported by FEMA, the U.S. Federal Emergency Management Agency, which has already approved $124 million to support individuals and households in Florida and $408 million to support those residents impacted in Texas. Along with direct support for its people, the U.S. government is accepting and approving SBA loans for businesses impacted by Hurricane Irma and Harvey. As residential rebuilding plans begin, many of the people living in these regions are also employees and business owners whose places of work may also need weeks or months to rebuild, if they rebuilt at all. How quickly the area’s economy recovers has obvious implications for the people and businesses in the region, but it also has far-reaching implications for businesses that depend on the region as a source of revenue as well. Experian is looking to its wealth of business credit data to gauge the overall magnitude of the disaster and the impact to regional businesses. Nearly 1.5 million businesses in Texas are in FEMA declared Hurricane Harvey impacted counties. This represents one in three businesses in all of Texas. The businesses impacted have $10 billion in outstanding payables and represents 31% of all commercial payable balances in Texas. The businesses in the impacted regions, on average, have very similar credit profiles to the rest of the businesses in Texas, with the typical business being 10 years old, paying 7 days late, and having an Intelliscore Plus commercial credit score of 41 out of 100. In Florida, nearly all of the state has been enveloped by Hurricane Irma. 3.9 million businesses reside in Irma impacted counties, accounting for nine out of ten businesses in Florida. These impacted businesses represent 91% of total outstanding commercial payables in Florida, summing to over $26.6 billion. That is over two and a half times higher the balance potentially at risk in Texas. As of August 2017, $3 billion of the payables are delinquent, and as most businesses focus on recovery, these delinquent dollars may slide into further delinquency. Businesses in Florida are, on average, slightly over 10 years old, pay 8 days late, and have an Intelliscore Plus score of 41. From an industry sector point of view, professional and business services were hardest hit in both states, with these businesses accounting for over 40% of all businesses impacted for each state, respectively. In Texas, professional and business services owe $2 billion in payables. In Florida, businesses in this sector carried over three times that balance, owing $6.5 billion in payables, with over $700 million already delinquent. In Texas, other industry sectors significantly affected include construction and retail trade, each accounting for 16% of businesses in the impacted region, and having $7.6 billion and $9.6 billion in total payables, respectively. In Florida, retail trade businesses represent 18% of all businesses affected, and account for $2.9 billion in commercial trade balance owed. Businesses in finance, insurance, and real estate account for 12% of businesses in the impact zones, and owe $1.7 billion in outstanding balance. Construction businesses in Florida represent nearly 10% of businesses affected. As Florida has a smaller percentage of businesses in the construction industry overall compared to Texas (10.1% vs 14.5% respectively), and 90% of construction businesses in Florida are in designated impact counties, Florida may require more assistance from outside the state to support their rebuilding effort. Smaller and younger businesses in general face lower odds of continued prosperity, and these businesses are the most susceptible to the devastation of Hurricane Harvey and Hurricane Irma. The impacted areas for both states are dominated by smaller businesses, with nearly 90% of businesses having four or less employees, and almost 100% having less than 50 employees. Even though they are small, these businesses account for $8.7 billion, or 86% of payables impacted, in Texas. In Florida, these small businesses total $23.8 billion in payable balance, which constitutes 90% of all impacted payables. Many of these small businesses are young, but Florida businesses are more mature than businesses in Texas. In Florida, 3.5 businesses out of 10 have been credit active for less than six years, compared to 4 out of 10 businesses in Texas. These young businesses in Texas owe a total of $2.7 billion, while young businesses in Florida owe two and a half times that amount, at $6.9 billion. Over the next several months, Experian will measure the financial impact of businesses caught in the devastating path of Hurricanes Harvey and Irma. We will track changes in key metrics that can provide insight into the level of progression of recovery by location and type of business. Businesses integral to the recovery efforts, such as home improvement suppliers, construction companies, sanitary service companies, and the workers they employ, will undoubtedly prosper as their products and services are immediately in demand and in short supply.Younger businesses and businesses in more severely impacted regions will have a difficult road ahead. We will continue to track credit activity, such as changes in spend, utilization, new trade openings, and payment delinquency trends, to identify business sectors and profiles that appear to be rebounding, and those in further need of assistance. Subscribe to our blog for the latest updates on the business recovery progress from Hurricanes Harvey and Irma.    

As the recovery gets underway, it will take months to assess the full economic impact of the unprecedented devastation brought to South Texas by Hurricane Harvey. Thousands of residents have been displaced, and as food and shelter are delivered and residential rebuilding plans begin, many of these people are also employees and business owners whose places of work may also need weeks or months to rebuild, if they will be rebuilt at all. How quickly the area’s economy recovers has obvious implications for the people and businesses in the region, but it also has farther-reaching implications for businesses that depend on the region as a source of revenue as well. Experian looked to its wealth of business credit data to gauge the overall magnitude of the disaster and the impact to regional businesses. Nearly 1.5 million businesses in Texas are in FEMA declared Hurricane Harvey impacted counties. This represents one of three businesses in all of Texas. The businesses impacted have $10 billion in outstanding payables and represent 31% of all commercial payable balances in Texas. The businesses in the impacted regions, on average, have very similar credit profiles to the rest of the businesses in Texas, with the typical business being 10 years old, paying 7 days late, and having an Intelliscore Plus commercial credit score of 41 out of 100. Statistics for areas impacted Texas Impacted Impact % TX Number of businesses              4,823,364              1,411,583 29.27% Total balances  $ 32,334,156,000  $ 10,014,029,400 30.97% Bal 1-30  $   1,630,010,705  $      515,641,208 31.63% Average utilization 26.22 27.34   Average IPV2 Score 40.93 40.54   From an industry sector point of view, professional and business services were hardest hit, with these businesses accounting for over 40% of all businesses impacted. Professional and business services owe $2 billion in payables. Other industry sectors significantly affected include construction and retail trade, each accounting for 16% of businesses in the impacted region, and having $7.6 billion and $9.6 billion in total payables, respectively. Impacted Businesses by Industry Smaller and younger businesses in general face lower odds of continued prosperity, and these businesses are the most susceptible to the devastation of Hurricane Harvey. The impacted areas are dominated by smaller businesses, with nearly 90% of businesses having four or less employees, and almost 100% having less than 50 employees. Even though they are small, these businesses account for $8.7 billion, or 86% of payables impacted. Many of these small businesses are young, and there are two in five businesses in the impacted counties that have been credit active for less than six years. These young businesses owe a total of $2.7 billion, or 27% of outstanding payables. Impacted Businesses by Company Age Over the next several months, Experian will show the level of progression of recovery by location and type of business. To be informed when we post about this topic, subscribe to our blog.

Experian and Moody's Analytics have just released the Q2 2017 Main Street Report. Developed by Experian and Moody’s Analytics, the Experian/Moody’s Analytics Main Street Report brings deep insight into the overall financial well-being of the small-business landscape, as well as providing commentary around what certain trends mean for credit grantors and the small-business community. Q2 highlights Small-business delinquency rates experienced broad-based improvement in the second quarter. With job growth expected to continue, putting more money in consumers’ pockets, small businesses will continue to outperform in the short term. As performance on small-business loans and lines of credit improves, credit is expected to flow more freely as banks and other lenders compete for business. Although tax reform and infrastructure investment could provide an additional boost to small-business activity, consumer spending will be the driving force for small-business credit over the next quarter — and throughout the rest of the year. Business delinquencies push lower Small-business delinquencies continued to trend downward in the second quarter. Both early- and late-stage delinquency rates saw improvement over the quarter. This trend has been firmly in place over the last two years and was expected given the continued slow but steady growth in the economy. Download Main Street Report

On May 10th we hosted an episode of Business Chat | Live. This episode features an interview with Experian Director of Analytics and Consulting, Peter Bolin. Peter shared highlights from his "State of Small Business Credit" presentation, which he co-presented at our Vision Conference in Orlando with Cristian DeRitis of Moody's Analytics. Gary: Welcome to today's Business Chat Live. I am Gary Stockton with Experian Business Information Services. I'm going to be joined today by Pete Bolin, who's Director of Consulting and Analytics at Experian. Pete just wrapped up his fifth annual State of Small Business Credit at the Vision Conference in Orlando. Peter: Good afternoon Gary, thanks for having me. Gary: Thanks for taking time out of your schedule. I know you guys are busy out there. You just finished the State of Small Business Credit and you presented there with Moody's Analytics. Can you give us some high-level highlights and recap your talk? Peter: Sure, absolutely. I'd love to. One of the things that was presented today in terms of the economic analysis is that we're in very near full employment and they are projecting that the employment numbers are going to start ... the market for employment's going to get really, really tight. One of the other things in addition to that was the real estate market is coming back. He (Cristian DeRitis of Moody's) had some statistics around home prices, particularly on the West Coast rising, so that's good news for real estate market and all the businesses that serve realtors and all the small businesses that serve that space. That's great news for them. I know down here in Florida it's booming. They're experiencing a big boom in real estate as well. This overall opinion on the economy the next 18 months was very bullish. Gary: How about small business and paying their bills? Are they paying down debt, are they taking on new debt, are they taking out loans? Peter: The state of the small business market is pretty stable. Very stable. Delinquencies are down, there is some increase in demand. Some of the utilization ratios are rising, so that's starting to heat up as well. We're also seeing that some of the online market is heating up. Traditional banks are also starting to get back into that small business lending space. Funds are becoming available, the overall economy looks like it's definitely growing, and that's all good signs for a small business market. Gary as you know, small businesses overwhelmingly are the drivers of employment in the United States so all of that bodes well in particular like I said earlier, we already know that Moody's is already predicting a very tight labor market. All of those things are very, very positive for the economy. Gary: Small businesses, they are adding jobs. Are they still confident? Because I heard that their confidence was taking a bit of a dip here in the first quarter. Peter: Actually that's not what we're seeing in the economic data, that small business confidence has slightly ticked up. There was a report in ... CNBC reported just yesterday on their broadcast that they were saying that business optimism was picking up, business owners are really looking forward to the cost savings from Obamacare, so I think that helped as well because we know the Obamacare cost does tend to hit small businesses. They're very optimistic about that, so there is economic data that does suggest that the confidence of small business owners is picking up. Gary: What else did you cover in the talk? What other highlights? Peter: One of the other things that was really interesting is that we tend to say that small business, micro business, are the ones that are driving the employment, and what the data tends to suggest is that's not necessarily the case. It's more in that mid-range business. 50 employees to 100, they are the real, that medium enterprise business, they're the ones that are actually driving that. That was a little surprising to me because I thought entrepreneurs coming in, they're going to employ one, two, three and they are doing that. What the data this time around suggests is that the employment growth is really coming in that 50 to 100 employee space. That surprised me because that was something that I did not expect. Gary: The data that we speak of, this is Experian data right, that we provide to Moody's Analytics, they're the economists that help us with this research. We do this every quarter with them and they produce the Main Street Report which I'm showing up on screen here in case the audience would like to get more information. I'll put a link there. This is commercial data, commercial small business data on credit like payment trends, and also credit scores as well. Peter: That's correct. One of the things that we shared today and one of the things you're going to see in the Main Street Report, is that there are some industries that are starting to recover. For example, one of the things that the data tends to suggest is that the mining industry is coming back. Delinquencies are down, we know from looking at our newly launched in-the-market model, the business credit seeker model, that that industry is looking for credit. They're looking to expand, and given the current climate of Washington and the new administration, there's definitely a strong trend in the mining industry. Their scores are very, very high, the net worth of the owners is relatively high. Delinquencies are down. The report will show that their IPV2 scores are very high. That all bodes well for industry that's going to recover and any one lender out there is looking to target a potential industry, you might want to look at the mining industry. It's starting to come back. Gary: Agriculture as well. I've read the headlines on agriculture, they've had obviously some subsidies there that are helping. That's the one industry that's a real standout right now. Peter: Mining, agriculture is coming back. One of the things the data suggests that Chris was talking about today was he's also bullish on construction. That housing market's picking up, construction traditionally got beat up in the last couple of years. It's starting to come back. Housing's starting to pick up. More construction is starting to pick up. He's really bullish on that one as well. Gary: It sounds like you had a great talk there. I think we'll probably leave it there for now. If folks want more information they can download the latest copy of the Main Street Report and also we'll be covering additional data from the report in a webinar next month, so they can find out about that too. Thanks very much Peter for coming on and spending a few minutes with us. Peter : Thank you for having me Gary. Look forward to having everyone read that report. If you would like to be informed of new episodes of Business Chat | Live be sure to subscribe to our YouTube channel, and follow us on Twitter.