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Tough Credit Conditions Predicted for the Remainder of 2013

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The rest of 2013 doesn't look promising for small-business credit, but by this time next year difficulties in the credit environment should subside and there should be better times ahead, according to findings from Moody's Analytics.


"Certainly by this time next year conditions will improve," said Mark Zandi, chief economist of Moody's Analytics. By then, fiscal issues that continue to put a damper on small businesses are expected to dissipate. In addition, Zandi predicts the housing market will be in full swing by next year, which would be a boon for many small businesses.

The next six to nine months, however, are expected to remain rough for small businesses in terms of credit quality, cost-cutting and hiring. Even tougher, perhaps, than the fourth quarter when conditions deteriorated again, according to data released today by Experian and Moody's.

The Experian/Moody's Analytics Small Business Credit Index fell 6.8 points to 97.3 in the fourth quarter from 104.1 in the previous quarter, according to the report released today. This is the second consecutive quarterly decline and is the index's lowest reading since Experian and Moody's began tracking this data in the fourth quarter of 2009.

Related: Loan Market Remains Weak Amid Small-Business Struggles

The index is likely to remain below 100 until at least the second half of 2013, according to the companies. Delinquent balances rose in the fourth quarter, pushing the share of delinquent dollars higher to 9.7 percent from the third quarter's 9.4 percent.

Credit quality is likely to remain weak over the next six to nine months as consumers adjust to smaller paychecks, and hiring is tempered by ongoing political uncertainty. Starting in January the two-year payroll tax holiday was allowed to expire, meaning people of all income levels are now paying an additional 2 percent. Meanwhile, Congress continues to wrangle over the details of sequestration, putting pressure on consumer and business confidence.

There are, however, some positive overtones to the fourth quarter data, Zandi says. It looks increasingly like the amount of credit outstanding has stabilized and may be on the rise, after falling for the past three years. This suggest that businesses are buying more and putting more on credit and that lenders are starting to open doors that had previously been closed. While there aren't a flood of new loans "it feels like the credit spigot is opening," he says.

On another positive note, the U.S. Small Business Administration Office of Advocacy last week released its annual report for 2012 on the state of small business. The report shows that small businesses are slowly rebounding from recessionary times.

Related: Small-Business Job Growth Remains Modest