Small Businesses Borrow More, But Should They?
Get the working capital your business needs–learn more about Entrepreneur Lending, powered by CAN Capital »
For a long time, small businesses couldn't seem to get a loan anywhere. The lending environment now appears to be on the mend.
Small-business lending rose 18 percent in January, the Thomson Reuters/PayNet Small Business Lending Index reports. We're still down from the high point hit four years back, but the index has been up double digits for 18 straight months.
As a result, many of the "experts" suggest that this bodes well for the economy. Small businesses will hire more, some opine. Other studies indicate that small-business owners are planning more capital spending.
But is the news that businesses are borrowing more really good news? Does it really presage an economic boom? I'm not so sure.
It could be small businesses are just reorganizing debts that mounted during the lean years. Or that they need to borrow simply to stay afloat, as they've exhausted their resources at this point.
The one thing small businesses apparently won't spend more on is marketing, but some may consider hiring.
Small businesses could also be operating like big businesses have in the past few years -- grabbing credit lines and loans while they can and then sitting on the money while they wait for the economy to truly improve.
Some entrepreneurs could just be sucking cash out of their businesses before leaving their sinking ships. Definitely wouldn't be the first time that's happened.
But in general, debt isn't a good thing for small businesses, particularly if it's high-interest credit-card debt. I think we'll have to wait and see whether small businesses are going to spend more to get more or whether they've just borrowed more.
Is increased small-business borrowing a good sign? Tell us what you think and why in the comments section.