Moderate Small Business Delinquencies Increase
The U.S. economy is still in the middle of a recovery after a spring drag down caused by government shut downs and other measures to halt the spread of COVID-19. "Defaults are expected to rise in coming quarters as forbearance programs expire and as customers are likely to change their priorities in the wake of COVID-19," according to the second quarter "Experian/Moody's Analytics Main Street Report."
Moderate delinquency rates (31-90 days past due) increased for the fourth straight quarter, states the report. Severely delinquent accounts (91-plus days past due) improved slightly, and bankruptcy rates remained unchanged. The report predicts "impressive numbers" in the third quarter as well after the dismal levels seen in April and May.
"There can be no quick recovery and return to normal without credit flowing to businesses," according to the report. In the previous economic downturn, businesses saw a tightening of lending—straining the economy and putting pressure on businesses. The report notes that this time, the government intervened with loans, but "time will tell if this is successful or merely a delay of the inevitable."
Among the eight regions studied, the Southwest, Southeast and Far West were among those to see delinquencies increase in the second quarter. The Plains and Rocky Mountain regions reported declines.
Programs, such as expanded unemployment insurance and loan forbearance, have pushed potential problems to a later date, while the economy continues to rebound during the summer months. "Whether such programs remain in place or are expanded will determine the path of small business credit performance for the second half of 2020 and into 2021 as well as the survival of thousands of small businesses," the report concluded.
-Michael Miller, managing editor