Are you wondering what's around the corner for your small business in terms of financing in the current economy? In addition to reading the business and political news, you may also want to review the current small business lending index (SBLI). As small businesses often must react to economic changes at a faster pace than their larger competitors, the SBLI can serve as a valuable indicator of larger scale economic impacts that could arrive in two to five months.
Here's a quick overview of the SBLI and how it may impact your business:
What Is the Small Business Lending Index?
According to PayNet, the SBLI measures the net volume of commercial loans and leases given to small businesses. This figure is indexed in such a way that January 2005's status equals 100. Strongly correlated to the Gross Domestic Product (GDP) leading indicator, the SBLI is produced and shared via PayNet and Thomson Reuters.
Using data from over 200 lenders, PayNet calculates the index monthly and compares it against the index for the corresponding month from the previous year to see if small business lending is increasing or decreasing. A larger number indicates that small business lending is higher than it was during the same month last year, while a smaller number means that lending has decreased.
How the Index Impacts Today's Small Businesses
Economists, financial services leaders and government policy makers monitor the SBLI when introducing and changing policies, interest rates and regulations around borrowing, lending, taxation and other economic activities. The decisions they make often have far-reaching effects on your personal and business financial situation.
For example, if the index shows an improvement, small business owners may find it easier to borrow money to start up or fund their current business activities because lenders may loosen up their loan requirements. Or, you may discover that borrowing for business and personal use costs more as interest rates on business and consumer lending and mortgages creep up. A higher index and increased interest rates may also impact your customers' wallet, shrinking your sales figures.
Economic uncertainty or volatility may lead to a reduction in the number of approved small business loans, which could lead to a corresponding reduction in the SBLI. A lower index may cause regulators to hold off on interest rate increases, which is good news if you're in the market for your own new financing. However, it may also lower returns on stock market investments for all investors, including small business owners.
The Current State of the Small Business Lending Index
As of October 2016, the national SBLI figure was 121.3 — the most recent number available — which is a 5.3 percent decrease over the same time last year, according to PayNet. By keeping an eye on the current SBLI, you can be one step closer to forecasting your company's short-term economic future.
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