US small-business borrowing falls in August: PayNet

Category: Small Business Borrowing
Published: Friday, 02 October 2015
Written by Admin

n>Borrowing by US small businesses fell for a second month in August, an index released Thursday showed.   

    The Thomson Reuters/PayNet Small Business Lending Index fell to 136.1 in August from a July reading of 144.1. It was up 14 percent from the level a year earlier.

    The index, which hit a record in June, has historically tracked ahead of US gross domestic product growth by two to five months.

    US GDP expanded at a 3.9 percent annual pace last quarter, although growth is expected to cool in the second half of the year.

    The decline in small-business borrowing is consistent with that expectation and may do little to sway the case for a US interest-rate increase. Federal Reserve chief Janet Yellen has signaled she still plans to raise rates this year, but would need to see some further improvement in the labor market and more confidence on the inflation outlook before doing so.

    The delinquency rate on loans more than 30 days past due was 1.47 percent in August, unchanged from the prior month, separate data from PayNet showed.

    PayNet collects real-time loan information such as originations and delinquencies from more than 250 leading US lenders.

(Reporting by Ann Saphir; Editing by Chizu Nomiyama)



Data On Small Business Loans To Women And Minorities

Category: Small Business Borrowing
Published: Tuesday, 08 September 2015
Written by Admin

The idea is that by gathering data on race and gender, it will be easier to enforce fair lending laws.

Banks that are not lending to women and minorities will be very visible, and it will be easy to see how a bank stacks up relative to the competition, which might lead banks to change their lending policies in order to avoid being accused of discrimination.

In addition, gathering all of this data into a central repository should provide for an improved understanding of small business credit needs. Whats broken and needs fixing? Its hard to know when you dont have the data.

How It Works

In practice, the banks are required to ask the business owner whether they have women-owned or minority-owned status, but the company requesting a business loan is not required to provide that information.

When the information is provided and the business identifies itself as being women-owned or minority-owned, the banker is not supposed to consider the status when making its lending decision.

Of course, banks have been collecting this type demographic data for mortgage loans for some time, but this is new for business loans.

Now that Dodd-Frank is in place, small business lenders must collect:

  • the number of the application and the date on which the application was received;
  • the type and purpose of the credit applied for;
  • the amount of the credit applied for, and the amount of the credit approved;
  • the type of action taken on the application, and the date of that action;
  • the census tract in which the principal place of business of the loan applicant is located;
  • the gross annual revenue of the business in the last fiscal year of the business loan applicant preceding the date of the application; and ;
  • the race, sex, and ethnicity of the principal owners of the business.

Sounds Good, But Theres Just One Problem

Since the bill was enacted in 2010, you might think that we now have five years worth of amazing small business lending data to analyze.

Unfortunately, youd be wrong.

As the Wall Street Journal points out this week: the agency tasked with enforcing the requirement, the Consumer Financial Protection Bureau (CFPB), hasnt written a rule to enforce it yet.

The bill was passed in 2010, but, as weve learned, the government moves slowly -- and its often much easier to pass a law than it is to implement it.

However, this particular issue is starting to get some attention. Last week, 83 congressional legislators voiced their desire to see the CFPB get moving on this part of the law (you can see the PDF version of their letter, if you are interested).

We completely agree, and you should too.

Small businesses are a critical driver of economic growth.

When we know how small businesses are doing then we know how the overall economy is likely to perform.

The small-business borrowing index has historically tracked ahead of US gross domestic product growth by two to five months, and is a good predictor of capital spending and job growth, confirms Bill Phelan , founder of PayNet, who regularly publishes the Thomson Reuters/PayNet Small Business Lending Index based on lending data from 250 leading US lenders.

The Good News

On the bright side, despite the failure of the CFBP to collect better data on small business lending, it does seem that small business lending is thriving.

Earlier this month, the Thomson Reuters/PayNet Small Business Lending Index hit a historical record high.

Of course, this may be partially driven by growing awareness that the Federal Reserve Bank will soon raise interest rates.

If you own a small business, the best time to borrow is right now.

Reports from Borrowers and Lenders Show Differences in Credit Card, Student ...

Category: Small Business Borrowing
Published: Saturday, 29 August 2015
Written by Admin

Credit card and student loan debt reported by borrowers and lenders in two surveys by the Federal Reserve Bank of New York varies significantly, according to a new study released by the Fed this week.

The authors of the study, "Do We Know What We Owe? Consumer Debt as Reported by Borrowers and Lenders," Meta Brown, Andrew Haughwout, Donghoon Lee and Wilbert van der Klauuw, compared reports on debt from borrowers in the Survey of Consumer Finances (SCF) and lender-reported figures in the Consumer Credit Panel (CCP) survey.

The researchers find that in the majority of disaggregated debt categories and borrower characteristics, with the exceptions being credit card debt and student loan debt, debt levels reported in the SCF and CCP are similar, according to a Fed news release on the consumer debt study.

Aggregate credit card debt reported by borrowers in the SCF is estimated to be 37 to 40 percent lower than what is implied by lenders' reports in the CCP, according to the Fed.

"Generous accounting for small business borrowing and other factors still leaves a 37 percent gap between SCF and CCP mean household credit card balances. The difference in reported credit card use between the SCF and the CCP is significantly and substantially larger for households with three or more adults than for single and two-adult households. This may be attributable in part to household survey respondents' greater knowledge of their own debt than of their household members' debt, and it may offer a partial explanation for the remaining 37 percent gap," the Fed reports.

According to the report, the differences in credit card use reported in the two surveys may be explained by the fact that unlike households represented in the CCP, SCF households may not have a member with a credit report. Additionally, SCF households may not report business uses of personal credit cards that still appear on households' combined credit reports, according to the Fed. "We make generous allowances for these explanations, and find that a 37-percentage-point gap in aggregate credit card debt remains."

Debt from mortgages, home equity loans and vehicle loans are at similar levels and similar age patterns in both surveys, according to the Fed.

The New York Fed conducts the SCF every three years by surveying US households on their assets and liabilities, while the CCP is based on data supplied by the Equifax credit reporting agency.

Student Debt

The aggregate student debt balances reported by borrowers in the SCF are 25 percent lower than those reported in the CCP, according to the Fed.

"The widening difference in student debt estimates has various potential explanations," according to the Fed's report. "The difference in the populations represented by the two sources as a result of the presence or absence of credit reports should play little role, because most student debts generate reports ... the SCF's use of household-level financial reporting by a single respondent may lead to undercounting of student debts held by grown children or other household members that are not fully known to the respondent. And, of course, respondents may not be fully aware of their own current debt balances."

The Fed reports that a combination of these factors could produce the gap in student loan debt in the two surveys.

Bankruptcy

The Fed researchers did find consistency in bankruptcy reports between the SCF and CCP.

Three-year bankruptcy rates reported in the SCF--2.90, 2.91, 2.25, and 2.70 in 2001, 2004, 2007, and 2010, respectively--are very similar to the 24-month household bankruptcy rates in the CCP of 2.70, 2.98, 1.97, and 2.65, the Fed reports.

"In contrast to the credit card debt mismatch, bankruptcy history is reported comparably in the borrower and lender sources, indicating that not all stigmatized consumer behaviors are underreported," according to the Fed.  "Whether this indicates that something other than stigma, such as ignorance of debt positions, underlies the credit card debt discrepancy, or that consumers feel differently about reporting major life events, such as bankruptcy, in contrast to more marginal financial position changes, remains an open question."

The Fed researchers continue to seek opportunities to observe comparable consumer self-reports and lender-reported data.

"Until such data are available, however, the detailed comparisons permitted by the rich SCF and CCP data provide our most complete picture of the reliability of debt reporting. Finally, while existing survey data provide limited opportunity to separate unwillingness to report financial information from lack of knowledge of financial information, experimental data might permit a distinction between knowledge of debt and willingness to report debt," the researchers conclude in their report.

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Examining Consumer Debt Through Multiple Lenses

Category: Small Business Borrowing
Published: Saturday, 29 August 2015
Written by Admin
In their study, authors Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw sought to gauge the similarity between the pictures of US consumer debt that are painted by lenders and by survey respondents. Their analysis relied on the SCF, a triennial survey of US households that focuses primarily on household assets and liabilities, and the CCP, which is based on data supplied by the Equifax credit reporting agency. After all, the authors argue, economists' understanding of the finances of US consumers is based heavily on survey data.

The economists compare consumer debt aggregates as well as metrics--such as the mean and variance--of the household distributions of total debt, mortgage and home equity lines of credit (HELOC), vehicle loans, credit card debt, student loans, and other debt in the two sources. They also compute household delinquency and bankruptcy rates in the two samples for 2001, 2004, 2007, and 2010, noting that two of those years (2001 and 2004) precede and two follow the implementation of a major bankruptcy law reform.

The report finds that in the majority of disaggregated debt categories and borrower characteristics, debt levels reported in the SCF and CCP are quite similar. Mortgages, HELOCs, and vehicle loans attain similar levels and follow similar age and geographic patterns and time trends in the SCF and CCP, for example. Overall, the weight of the evidence indicates a high level of accuracy in the correspondence between debts in the two sources. However, the authors also find that credit card debt appears to be up to 40 percent lower in the SCF than in the CCP, even when one includes both carried debt and convenience uses of credit cards in each measure. Generous accounting for small business borrowing and other factors still leaves a 37 percent gap between SCF and CCP mean household credit card balances. The difference in reported credit card use between the SCF and the CCP is significantly and substantially larger for households with three or more adults than for single and two-adult households. This may be attributable in part to household survey respondents' greater knowledge of their own debt than of their household members' debt, and it may offer a partial explanation for the remaining 37 percent gap.

Moreover, the aggregate student debt balances implied by the SCF are 25 percent lower than those implied by the CCP, which, in turn, are similar to aggregates drawn from other student debt sources. This difference may be explained in part by the non-institutional, household-level sampling frame of the SCF. Nevertheless, the authors note the similarity in the steep upward trends in student debt measured in the two sources.

Perhaps most unexpectedly, bankruptcy appears to be reported at similar frequencies in the SCF and the CCP. Bankruptcy has been documented to be a stigmatized borrower behavior, and it would be costless to survey respondents to omit reporting past bankruptcies during their interviews. Nevertheless, among one- and two-adult households, the CCP's two-year household bankruptcy rates in 2001, 2004, 2007, and 2010 align quite credibly with the SCF's one- and three-year bankruptcy rates.

Meta Brown is a senior economist in the New York Fed's Research and Statistics Group; Andrew Haughwout and Wilbert van der Klaauw are senior vice presidents in the Group; Donghoon Lee is a research officer in the Group.