Latest / Market Pulse / Credit and Lending Insights for Small Business
Transcript
- Equifax Market Pulse podcast Ep. (Sarah Briscoe) Olivia Voltaggio (00:59): Welcome to the Market Pulse Podcast. I'm your host, Olivia Voltagio, filling in for our regular host Katherine Doe. Here's an interesting statistic. 93% of small business owners expect moderate or significant growth over the next 12 months, 93%. That's according to a recent report from OnDeck and Ocrolus. Yet the biggest question mark continues to be the timing of when the Fed may decide to lower interest rates, which would help ease some of the current small business stress. In today's episode, we're going to discuss the economic and consumer credit factors impact in small businesses and the unique insights coming out of the Equifax small business indices. Joining me is Sarah Briscoe lead commercial statistical analyst at Equifax, who returns to the podcast to give an update on the latest small business lending, delinquency and default data and some of the trends she's seen on a state and industry level. Welcome back to the show, Sarah. Great to see you again. Sarah Briscoe (02:04): Thanks for having me. Olivia Voltaggio (02:06): Before we jump into the main topic, let's get a brief economic update from David Fieldhouse, director of Consumer Credit Analytics at Moody's Analytics. David? T Thanks, David. Now that we've got the macroeconomic background, let's dig into the small business landscape. Sarah, for our audience members that aren't familiar, could you give a quick refresher on the Equifax small business indices, what they are, what they measure, and the benefits they offer to multiple types of decision makers? Sarah Briscoe (02:35): Absolutely. So the indices measure small business lending volumes across states, across industries each month, as well as the volume of delinquent debt. So 31 to 90 days past due and also 91 to 180 days past due, as well as default rates. So that would be 90 days past due or some kind of negative event like a bankruptcy or a repossession or a charge off. And those are each measured monthly and it's used often by lending institutions, by government institutions to both see what has occurred and benchmark against the past, but also to be used in models to predict the future or to predict default risk on their own portfolios. And it's actually been validated to be predictive of changes in the economy and changes in GDP. So it's a very powerful indicator. Olivia Voltaggio (03:40): Sounds like it. The latest small business indices data shows that lending activity improved while the delinquency and default indices are rising more slowly. What does this data tell us about small businesses and how they are faring? Sarah Briscoe (03:55): So the lending indexes up slightly. It's a nominal index, which means we do expect it to increase over time. If we look at the inflation adjusted pattern, it's done, it's down just slightly. Which is actually quite positive given the current environment of interest rates, the current environment of inflation and how expensive that debt can be for those small businesses, especially if it's a variable interest rate and if it, the debt cost has increased over the past couple of years. And so the lending being just very, very slightly up not inflation adjusted or down very, very slightly inflation adjusted means that there's still a really, really strong demand from small businesses to get capital from lending institutions. We did expect delinquency and default to increase after the pandemic. During the pandemic. There was a lot of lending going on through PPP programs, through EIDL government programs and as well as stimulus money out to consumers that they can spend at small businesses. And so we, we were in a super low default rate environment, so this is a bit of a correction and even though it's, it's up quite a bit, it is not for most industries, it is not severely above pandemic levels, the early part of the pandemic, and it is not even close to what we saw in the last recession. So the numbers look a little scary when you first, when you first see them, but it is somewhat expected given the current environment. Olivia Voltaggio (05:59): That makes sense. And what are some factors that small businesses and commercial businesses should be watching in the current environment? Sarah Briscoe (06:08): So we just got the latest inflation numbers and inflation has eased just a little bit, and the Fed actually said that they expect inflation to continue to ease a little bit going into the, the rest of the year. And so that's a huge factor to watch because that's what the Fed is watching to make their decisions around interest rate cuts. And nothing is going to be fast or easy about inflation or interest rates change it, you know, changing, but it is a step in the right direction. And we do have a really strong labor market, and that's something that the Fed has called out as well. And so that those are gonna be the main pieces that everybody is watching to see what's gonna happen next. Olivia Voltaggio (06:57): On that note, are there any state or industry level trends that stand out to you? Sarah Briscoe (07:03): That's a great question. So in small business industry is really important and we do see a kind of disparate picture of what's going on depending on what metric and what industry you're looking at. So for example healthcare looks really, really strong right now. Lending is growing a ton and there's a lot of demand in that industry for staff, for you know, patients to get care. And it's, it's gonna continue to grow, we expect as we go into the next couple years. And so even though the wind disease up a little bit in the industry, again, it's up for everybody. So it's just kind of part of the environment right now, but that growth is, is really, really stronger there. On the other hand, there's transportation is a, is a tough one where there was a lot of demand and a lot of supply chain issues during the pandemic. And there are a lot of new trucking businesses or transportation or logistics type businesses that came through, and we've seen a really large increase in default for that industry and a suppression of lending. So it's, it's a completely different picture depending on what industry you're looking at, but there's obviously positives and negatives. And on the transportation side, we are starting to come out of it a little bit. It's starting, has been starting to ease in the past few months. So that's a good sign for those in that industry. Olivia Voltaggio (08:47): Given all those differences and all those factors that those businesses have to look for, can you give some examples of how commercial businesses might incorporate this data into their decision making? Sarah Briscoe (09:00): So a lot of users of the indices you can access it on our website for free and you can kind of see how the trendings come through, but there's also the opportunity to use the raw data and put it into models or to use it in conjunction with other metrics to just get a benchmark of like, Hey, where, where am I at against what's happening? So it's a really great tool for both measuring up what you're, what, what that business is doing, but also just to get a feel for, for where things are at or use it in some technical, more technical ways. Olivia Voltaggio (09:46): Sarah, thank you for joining us today. If our audience would like to follow up with you, where can they connect with you? Sarah Briscoe (10:38): They can connect with me at Sarah.briscoe@equifax.com or through any of the contact forms on equifax.com. Olivia Voltaggio (10:47): Thank you so much, Sarah. If you enjoyed today's episode, thank Sarah Briscoe (10:50): You so much, Olivia Voltaggio (10:52): . If you enjoyed today's episode, tell your friends about us and subscribe. If you'd like to send us questions or suggested topics for future episodes, email us at Market Pulse podcast at equifax.com/market pulse. We provide relevant economic and credit insights to help your business make more confident decisions. Thanks for listening, and please join us next time.