By Ann Saphir
Oct 1 (Reuters) - Borrowing by U.S. small businesses edgedup in August, pushing an index of borrowing to a six-year high.
The Thomson Reuters/PayNet Small Business Lending Index,which measures the volume of financing to small companies, rose1 percent to 116.6, the highest level since August 2007. Theindex registered 115.4 in July, revised from an initial readingof 117.7, PayNet said on Tuesday.
Historically, PayNet's lending index has correlated tooverall economic growth one or two quarters in the future.
The reading came as investors were boosting expectations theFederal Reserve would likely reduce its massive stimulus programin September.
Those expectations, however, were misplaced. The Fed decidedat its meeting last month that the economy was not strong enoughto justify reductions in stimulus, and it reiterated its promiseto keep buying bonds until the labor market strengthens further.
Because small companies typically take out loans to buy newtools, factories and equipment, more borrowing could signal morehiring ahead.
But the sluggish pace at which borrowing is increasing makesaccelerated growth in jobs unlikely, PayNet President BillPhelan said.
"I would expect continued slow growth in the economy,"Phelan said in an interview.
The outlook for the jobs market is crucial to the Fed'sdecision on whether to cut back on its bond-buying stimulus,with Fed Chairman Ben Bernanke saying he wants further proof oflabor market strengthening before doing so.
Reduced stimulus may paradoxically push small businesses tospeed up borrowing, Phelan said, as they move to lock in lowrates.
"Once tapering occurs... those are the conditions that makeit ripe for small businesses to start to invest and expand," hesaid.
Low financial stress at small businesses, with more of them paying back loans on time, could bode well for futureborrowing.
Delinquencies of 31 to 180 days fell in August to anall-time low of 1.48 percent of all loans made, according to theThomson Reuters/PayNet Small Business Delinquency Index.
Accounts overdue as a percentage of all loans have fallensteadily since rising as high as 4.73 percent in August 2009.
PayNet collects real-time loan information such asoriginations and delinquencies from more than 250 leading U.S.lenders.
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