Veda Advantage’s Business Credit Demand Index, released today, shows demand for business credit among small business is down 7.3 percent in the December quarter over 2009.
Hamish Osborn, Head of Commercial Risk at Veda Advantage, said credit demand remained under a cloud with overall business credit applications below pre-GFC levels.
“Many SMEs kept a conservative approach to credit right across 2010. The high cost of raising capital appears to have continued to cause many businesses to focus on cost containment rather than expansive business initiatives.
“Small and medium businesses need to maintain stringent credit risk management in 2011 as the economy slowly recovers. All SME’s should be checking business credit risk before taking on a new client or partner. Businesses should also monitor existing credit relationships to reduce the possibility of being exposed to bad debt, which could be lethal in the current business climate,” Mr Osborn said.
Asset finance recorded the largest year-on-year decline of all business finance in the October to December quarter, down 26.4%. Trade credit, which accounts for 39.5% of all credit demand was down 2.4% but was the only type of major business credit to register above 2007 levels. Business loans remained flat at -0.7% year-on-year.
In the October to December quarter of 2010 all states and territories experienced a decline in business credit, with the largest falls in Tasmania (-10.3), followed by Queensland (-10.2%), Western Australia (-8.7%), New South Wales (-6%), Victoria (-6.3%) and the ACT (-4.3).
Mr Osborn said in 2011 Australian businesses and credit providers are all facing significant legislative changes and new compliance obligations, which might have further impacts on credit processes.
“New Responsible Lending legislation, Anti-Money Laundering compliance, and the new Personal Properties Securities Register each require businesses to review the way they provide credit to business and consumers. Now more than ever, businesses need to be stringent about their credit approvals process to maximise cash flow, minimise bad debt and in the case of the Personal Property Security Register to secure the credit provided,” he said.
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