Small and medium-sized businesses in the United States are taking out more new loans and keeping up better with repayments on existing loans, both signs the economic recovery is gaining pace, PayNet Inc reported on Monday.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing, rose 4 percent in March, the first year-on-year gain since October 2007, two months before the recession began.

And while loan accounts behind 180 days or more rose to a five-year high of 0.96 percent of lenders' portfolios in March, accounts that were 30 days or more behind in payment plunged by the most in 11 years. Accounts 90 days or more in arrears also fell, according to PayNet, which provides risk-management tools to the commercial lending industry.

Taken together, the data marks a milestone for the small business economy and thus for the economy as a whole, said Bill Phelan, Paynet's president and founder.

The status of the small business economy is critical to creating jobs, to putting pay checks back in peoples' pockets and to ultimately getting people to pay more in taxes, Phelan said. Small businesses are finally growing again.

As businesses borrow more, they are likely to hire more people and banks are likely to see fewer defaults, he said.

The Thomson Reuters/PayNet small business lending index is correlated to developments in the overall economy, with changes in the index preceding changes in gross domestic product by two to five months.

The index was already signaling economic growth in the third quarter, before GDP growth turned positive in the fourth quarter, Phelan said.

Loan accounts in arrears at least 180 days, or in default and unlikely to ever get paid, rose to 0.96 percent of total receivables in March, the highest since at least 2005, PayNet said.

But accounts in moderate delinquency, or those behind by 30 days or more, fell to 3.79 percent from 4.33 percent in February, the steepest drop since January 1999.

That's really a good indicator of where defaults are going, Phelan said. A decline in 30-day delinquencies will reduce 180-day delinquencies, with a five-month lag, he said.

Accounts 90 days or more behind in payment, or in severe delinquency, fell to 1.31 percent in March, from 1.38 percent in February.

PayNet collects real-time loan information, such as originations and delinquencies, from more than 200 leading U.S. capital equipment lenders.

More on the Thomson Reuters/PayNet Small Business Lending Index is available at

(Editing by Leslie Adler)