Friday October 30, 03:30 PM

EXCLUSIVE - U.S. small business loans in default rise - PayNet

By James B. Kelleher

CHICAGO (Reuters) - Defaults by small and medium-sized U.S. businesses on the loans, leases and lines of credit they use to finance capital equipment investment rose in September as lenders remained reluctant to extend fresh financing, PayNet Inc reported on Friday.

But accounts in moderate and severe delinquency decreased during the month, a potentially encouraging sign that some businesses borrowers are finding it easier to meet their obligations.

Accounts in moderate delinquency, or those behind by 30 days or more, fell to 4.22 in September from 4.35 percent in August, according to PayNet, which provides risk-management tools to the commercial lending industry. That is the lowest level since January.

Accounts 90 days or more behind in payment, or in severe delinquency, also improved modestly, slipping to 1.40 percent in September from 1.48 percent in August.

But accounts behind 180 days or more, or in default, rose to 0.85 percent in September from 0.81 percent in August. PayNet's Small Business Lending Index, which measures the overall volume of financing, fell 22 percent year-over-year in September, a sign that lenders remain reluctant to extend credit to small and medium-sized businesses.

"It's hard to imagine a robust recovery when you see numbers like this," said Bill Phelan, president and founder of Skokie, Illinois-based PayNet.

PayNet's data comes one day after the U.S. Commerce Department reported the economy grew in the third quarter as government stimulus helped lift consumer spending and home building.

But the growth was driven by emergency government programs like the popular "cash for clunkers" incentive for new auto purchases and an $8,000 tax credit for first-time home buyers.

The auto discount program ended in August and the home tax credit is due to expire next month, although Congress is working on a plan to extend it.

In the absence of government support, there are fears the growth will not extend into coming quarters, with unemployment also inflicting damage.

To help small businesses, widely regarded as the job-creating engine of the U.S. economy, the Obama administration is seeking to raise Small Business Administration loan limits to $5 million from $2 million.

PayNet collects real-time loan information, such as originations and delinquencies, from more than 225 leading U.S. capital equipment lenders.

The company's proprietary database encompasses more than 16 million current and historic contracts, worth $700 billion. More than half the money invested in plants, equipment and software in the United States in any given year is financed with loans, leases and lines of credit.

(Reporting by James B. Kelleher, editing by Leslie Gevirtz)

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