Investment Contrarians

Small Companies

Small companies are defined as those businesses that have less than 500 employees and qualify under the U.S. Small Business Administration for their programs. Small companies can range from your local corner store to a small manufacturer of products.

Small Business Loans Drop: Does This Foreshadow a Slowing?

By for Investment Contrarians | May 3, 2013

Small Business Loans DropSmall business is the backbone of America’s economy. While large multinational companies tend to get all of the attention, it’s the small companies that are critical to the country’s economy.

From your local “mom and pop” shop to the independent watering hole around the corner to the small manufacturing company making widgets, small companies are critical to the economy.

These are the companies that tend to fare better than other companies when coming out of a recession or a slowdown, due to their ability to make quick decisions in response to rapidly changing business variables.

While large companies could take months to adapt to a changing business environment, small companies could take only days or weeks to adjust, which is why their activity should be monitored.

An interesting measure on how well small companies may be doing can be linked to the amount of loans taken out. The thinking is: the higher the loans, the more the business is growing.

The Small Business Lending Index (SBLI), developed by Thomson Reuters and PayNet, is a good benchmark on small business lending. The SBLI is based on the volume of new commercial loan and lease originations from the major lenders in the U.S. given to small companies.

In March, the index fell to 98.5 from 105.4 in February.

The SBLI chart shows the pattern of the loans from 2005. You will notice the dip in loans when the recession surfaced, followed by the steady rise in loans to small companies up until the present time. Also note the recent big dip in loans to small companies.

This recent decline may prove to … Read More