Veda Advantage: Small business credit demand down 7.3%

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).

CreditorWatch Managing Director Colin Porter said businesses need to implement systems to ensure they aren’t burned by bad debtors the next time the market contracts.

“Businesses need to be especially vigilant at the moment and ensure they have systems in place to assess the credit worthiness of new customers and mitigate the associated risks. Businesses should be looking to gather as much information about potential creditors as possible through the use of credit checks, reports and trade references.” he said.

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