Financing

Why It's Riskier to Lend to East Coast Small Businesses


Why It's Riskier to Lend to East Coast Small Businesses

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Small business credit quality improved in the first quarter of 2013, according to a study published on Tuesday by Experian (EXPN:LN) and Moody’s Analytics (MCO). That’s welcome news, especially given continued reports of small businesses’ struggles to get bank loans. But improved credit conditions haven’t been evenly distributed; East Coast states lag their counterparts out West, where a stronger housing market has lifted small businesses.

The Experian/Moody’s Analytics Small Business Credit Index uses repayment data from banks and other credit providers to assess conditions at U.S. businesses with five to 99 employees. The index showed improvement in the first quarter, as small business loan delinquency rates decreased—a “welcome surprise,” according to the report.

But delinquency rates were higher along the Eastern seaboard than elsewhere in the country. Massachusetts, New Jersey, Pennsylvania, and much of the Southeast had delinquency rates from 17 to 28 percent. Idaho, Wyoming, Colorado, Utah, and New Mexico had delinquency rates from 1 percent to 5 percent. The national average was 11.2 percent.

Strong housing markets in the Mountain West region are a big reason why small businesses are doing better at keeping up with loan payments, says Mark Zandi, chief economist at Moody’s. Small businesses “from landscapers to cable hookups to small contractors, and even mortgage brokers” are riding the housing rebound out West, says Zandi. On much of the East Coast, the housing market is flat. Eastern states are also more closely linked to the struggling European economy.

Despite slower improvement at small businesses in Eastern states, Zandi says that overall, small business credit conditions are moving in the right direction. For one thing, he notes, migration flows to Southern states are picking up momentum lost during the Great Recession. That may lead to a stronger housing market—and in turn, better small business credit in months to come.

Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.

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Companies Mentioned

  • EXPN:LN
    (Experian PLC)
    • $1021.0 GBp
    • 18.00
    • 1.76%
  • MCO
    (Moody's Corp)
    • $89.18 USD
    • 0.68
    • 0.76%
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