Experian/Moody's Analytics Small Business Credit Index edged up by less than one point in the second quarter ended June 30, to 104.1 from 103.2, the third consecutive quarterly improvement after falling over much of 2011.

The report's findings also show that credit quality will be slow to improve in the coming months because of threats to consumer confidence and spending. Business confidence is in line with an economy that's growing below potential, and the report states this could weigh on hiring through the rest of the the year and postpone the rise of a consumer-led recovery.

“Small businesses continue to get their financial houses in order, but the progress is slow and they remain cautious in expanding their operations,” says Mark Zandi, chief economist at Moody’s. “Until small businesses step-up more aggressively, the economy will struggle to grow.”

Highlights from the Q2 report show that small-business credit quality improved slightly amid slower hiring and new worries about the European fiscal crisis. Small-business financial strength continues to vary considerably across the country. In areas where hiring has picked up and earnings are growing, consumer spending has provided a boost to small companies. Where spending is still weak, small-business credit quality remains poor.

The trend in business payment behavior also continues to be a concern. U.S. small businesses on average paid their bills 7.4 days beyond contracted terms during the second quarter, compared with fewer than seven days in the year-ago period. Average days beyond contracted terms grew regardless of firm size, but large companies employing more than 1,000 people showed the greatest increase, along with firms with fewer than 19 workers.

“Paying bills on time is just as critical for a business as it is for a consumer,” says Allen Anderson, president of Experian’s Business Information Services. “Delinquent payments have a direct negative impact on risk scores, making it difficult to qualify for the best rates and terms. Having this access to additional credit when needed, can be a business’ life line in times of economic distress.”

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry