By Elvina Nawaguna
WASHINGTON (Reuters) - U.S. small businesses took out fewer loans last month but borrowing was up from a year ago as firms ramped up investments in their operations, according to data released on Tuesday.
The Thomson Reuters/PayNet Small Business Lending Index fell to 119.2 last month from 122.4 in January. Still, the index was up 7 percent from February 2014, signaling a steadily improving sector.
The index gauges borrowing by firms with $1 million or less in outstanding debt.
An increase of 1 percent to 2 percent indicates businesses are borrowing to replace worn out assets, PayNet founder and President Bill Phelan said.
Higher readings signal that firms are investing more to increase their production of goods and services. That could include buying new machinery, purchasing more property or expanding business divisions.
"It tells us that these businesses are investing because they are getting more orders and more purchases from their customers," Phelan said.
Small businesses account for nearly half of gross domestic product in the United States, and an increase investments means that GDP will likely increase with a lag of two to five months.
A separate PayNet index showed loan delinquencies of 31 days to 180 days inched up by four basis points from last month to 1.57 percent.
The slight increase was no cause for concern as it indicates cautious use of credit by small firms, Phelan said, adding that defaults will be moderate in 2015.
PayNet collects real-time loan information such as originations and delinquencies from more than 250 leading U.S. lenders.
(Reporting by Elvina Nawaguna; Editing by Alan Crosby)