OTTAWA (Reuters) - Lending activity to Canadian small businesses slowed modestly in September, though borrowing picked up for medium-sized firms, a report showed on Thursday, suggesting overall economic conditions were improving.
The PayNet Canadian Small Business Lending Index edged down to 117.7 from a reading of 119.7 in August, posting a drop after increasing for the previous two months.
But at medium-sized companies, the gauge of lending increased to 224.1 from 219.3. Lending was also up 5 percent compared to a year before, the index's first year-over-year increase since June 2015.
Canada's economy was in a brief recession last year when it was hit by the drop in oil prices and the pullback in investment in the energy sector has weighed on smaller businesses.
But September's increase in lending in the manufacturing sector and in the oil-sensitive province of Alberta suggested the economy was adjusting, said PayNet President Bill Phelan.
"It seems like a little bit of a setback, but the reality is things are looking much more positive," Phelan said of the numbers.
Lending to small businesses picked up in Alberta, which has been hard-hit by the oil price slump, with the measure rising to 165.0 from 164.4.
Ontario, which had been helping to drive business growth, edged downward to 150.0 from 152.7.
By sector, lending activity to small manufacturing firms picked up to 65.8 from 65.2. The accommodation and food industry, which had been strong as the lower Canadian dollar attracted tourists, declined to 232.3 from 242.4.
Delinquency rates were relatively stable, with the number of small businesses that were 30 days or more behind on loans holding at 1.17 percent in September. Those that were more than 90 days late edged up to 0.36 percent from 0.35 percent.
Reporting by Leah Schnurr, editing by G Crosse