PayNet President William Phelan said last Monday that there is good reason to be hopeful about the economy as he sees that small businesses have increased borrowing so that they can re-tool themselves during the lean years of the recession. These small businesses are now more confident, profitable, showing lower-risk loan profiles, and are spending more in anticipation of expansion.

 Borrowing Up

Phelan was speaking at the 2011 Reuters Manufacturing and Transportation Summit. He said that there is increased borrowing for new investment among small businesses. They have consolidated, added technology to increase their efficiency, and outsourced many tasks so as to keep hiring down to a minimum.

“What we’ve been undergoing is a new economic order,” he said. “The economy is adaptable, and it’s adapted to the new reality.”

Trend of Double-Digit Gains

The borrowing statistics are based on the Thomson Reuters/PayNet Small Business Lending Index. This index measures the general amount of financing to small businesses and it has shown 15 months of double-digit gains, with a 20% increase this past October.

“There’s underlying strength in the U.S. economy that’s not being reported by stock market indices,” said Phelan. “Profits drive confidence, and we’re not seeing that profitability reported anywhere because these are privately owned companies.”

Betting the Barn on Better Days to Come

Phelan added that small businesses which are borrowing now are essentially making a four year bet; they would not take such a chance if they did not feel that there are important signs of consumer demand going up and an economic recovery in sight.

PayNet is a Chicago based firm providing risk management tools to the commercial banking industry. The data it presents are based on commercial leases and loans of over 19 million contracts whose value is about $900 billion.