Analyst Reports Dropping Default Rates on Small Business Loans
As reported by Yahoo Small Business, the WAIN Street monthly business default index reports a decrease in default rate for small business loans from the first half of the year by .11 percent for a rate of 6.98 percent, with rates at pre-recession levels. Additionally, the index revealed that the lowest default rates were concentrated around the smallest of the small businesses included in the index, with a 4.05 percent default rate among sole proprietors and 5.65 percent among those with fewer than 20 employees. With strong credit performance coming from these businesses, it bodes well for the growth of their credit options going into the next few quarters.
The smallest SMBs have had some of the hardest times applying for financing from traditional banks. The fact that they are some of the strongest performers when it comes to paying back debt obligations makes this fact even more pronounced, however, due to excessive costs related to underwriting small business loans that do not slide with the size of the loan, and the hyper-risk adverse stance adopted by many larger financial institutions during the recession, the smallest businesses contributing to the economy have largely been overlooked in favor or larger and more profitable loans giver to larger and more established businesses. In light of this situation, providers of alternative capital have made major moves to serve this market, making many advances in the way that smaller businesses are underwritten. Hopefully these advances combined with a lower default rate and a generally optimistic outlook on the part of small business owners will herald more robust job growth and economic recovery in 2015.
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