Small business owners are borrowing more money to meet customer demand, according to data released Thursday. Borrowing by small firms in the U.S. ticked up in May, hitting its highest level in almost a year. The Thomson Reuters/PayNet Small Business Lending Index for May rose to 137, up from 125.4 in April.
The rise in borrowing corresponds with the Fed’s second-quarter U.S. economic growth projections, showing that small enterprises are investing in their businesses to keep up with demand. Small business borrowing is a key barometer of economic growth and job gains, and movement in the index is typically tied to changes in gross domestic product growth a quarter or two ahead of the report.
However, the increase “is not enough to say ‘we’re off to the races,'” said PayNet’s chief executive and founder Bill Phelan. “We’re not going into contraction mode.” he added.
Earlier this year, small business borrowing stalled and economic growth in the U.S. dropped to its slowest rate in three years. Economists said uncertainty over the Trump administration’s policy changes as the main reason business owners were hesitant to invest. Small businesses refused to be swayed by President Trump’s promise of a corporate tax cut and whether that would positively impact their business, according to Phelan.
By industry, borrowing increased the most among businesses in the arts and entertainment sector, growing 11 percent year-on-year. Meanwhile, borrowing fell 14 percent for the second month in a row among health care companies. Experts cite the Trump administration’s failure to deliver on a replacement health care plan for the decrease.