Small business lending rose slightly in January

Jessica SarterSmall Business Lending

Lending to small businesses improved mildly in January, as the latest Thomson Reuters/PayNet Small Business Lending Index shows borrowing increased by 18 percent to mark the 18th consecutive month of double-digit growth.

The number of small business loans in severe delinquency also fell, with accounts 90 or more days past due dropping from 0.38 percent in December to 0.37 percent in January. Moderate small business loan delinquencies, on the other hand, climbed slightly.

While analysts are quick to point to the increase as evidence of an improving credit market, some were reluctant to declare it as outright evidence of recovery. The year-over-year gain, for example, was less than the four-year high observed in December.

Credit conditions are also notoriously difficult to estimate, as a lack of activity may be a result of either tighter standards or weakened demand. In fact, banks hold that loan applications have indeed fallen, while small business advocacy groups maintain that traditional lenders have deployed excessively tight qualifications.

"It's like a lukewarm cup of coffee – it's not bad, but it's not great," PayNet founder Bill Phelan told Reuters in an interview. "We're all looking for really strong growth, and I'm not sure when we are going to get it."

Phelan added that shifts in the labor market in recent years – namely the widening of the services sector – has led to fewer or smaller capital investments by large banks and lenders.

"There's less demand to invest in capital projects in the service sector," Phelan told CNBC. "Companies are investing in productivity enhancements, like software and technology. But they're not hiring; they are holding cash on their balance sheets."