BUSINESS
11/01/2010 12:53 pm ET Updated May 25, 2011

SHOCKER: Small Business Loans Hit Highest Level In Two Years (POLL)

Small business borrowing is now at its highest level in nearly two years and loan delinquency rates are falling, according to data released by PayNet this morning.

The Reuters/PayNet Small Business Lending Index, which measures the volume of small business financing in the U.S., rose 16 percent in September and 15 percent in August. Small business lending activity, according to the index, is at its highest level since December 2008.

Meanwhile, fewer companies fell behind on their existing loan payments, separate PayNet data showed. Accounts in moderate delinquency, for instance, fell to their lowest level since mid-2007. "That trend may in turn boost borrowing, since higher repayment rates can free up capital that lenders might have otherwise set aside against the possibility of default," Reuters reported.

But are small firms using borrowed funds to reinvest in themselves and hire more workers? Some early economic indicators suggest that they are.

The TriNet Human Capital Index showed that small technology and services companies increased hiring by 0.79 percent in September. In addition, the pace of small business layoffs continued to decline, the data show, and remains well below the layoff rate in the broader economy. Small business layoffs decreased by 42.4 percent in September, compared with an increase in layoffs of 3.57 percent in the broader U.S. professional and business services sector.

An Equifax study also showed that small business bankruptcy filings declined more than 11 percent in the third quarter of this year compared to over a year ago, and have decreased nearly 19 percent since their peak in the second quarter of 2009. It is the fifth consecutive quarter that small business bankruptcies have dropped.

And some more good news: durable goods orders rose along with shipping, world steel output, the hotel industry and international air travel, which are each back to pre-recession levels. (Hat tip the New York Times' Gene Marks.)

Despite the recent reports that show borrowing is up, small business owners remain skeptical that the economic recovery will accelerate in the short-term. Customer demand, they say, is far more important to business growth than capital or stimulus.