There is more willingness on the part of small businesses to borrow. This is due to increased competition amongst the banks. A significant boost to the big four’s loan books may not show for a few months yet.
Businesses of all sizes have shown their willingness to borrow over a 12-month horizon since November 2010. However, research firm, DBM consultants reported on Tuesday that expectations declined in April for all except for the smallest micro-sized enterprises.
These micro-sized enterprises represent 89 per cent of all Australian businesses of which 39 per cent of them do not have loans. Furthermore, they have annual leftovers of less than $1 million. Those with annual turnovers of around $200,000 are expecting to change their debt levels over the next 12 months.
Sentiment was assessed and found to be strongest amongst miners, insurers, and other financial services firms. The weakest, on the other hand, is among those in retail, agriculture, tourism and construction sectors.
DBM has been commissioned by the four banks to conduct surveys. Among the top concerns listed by all businesses are rising interest rates and business costs.
John Hinchy, DBM’s Chief Statistician, describes the mismatch between borrowing expectations and business sentiment for micro-sized businesses as a conundrum.
However, Colin Whitehead of Fat Prophet says this observation is probably because businesses want to borrow in order to plug their cash flow problems.
He also stated that the competition among lenders to win business loans is driving these small businesses to increase their borrowings. “The banks are competing more actively in that space, therefore they are likely to improve the terms,” said Whitehead.
The top end of town only represents 0.3 per cent of Australian businesses, but it covers about 40 per cent of all Australian borrowings. Meanwhile, small businesses only account for 15 per cent of all Australian borrowings.