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Business credit demand down 5.6% year-on-year

Veda Advantage’s Business Credit Demand Index, shows many small-to-medium sized businesses have been reluctant to take on credit throughout 2010, with demand falling 5.6 percent in the April to June period over the same quarter in 2009.

business creditMonthly analysis of Veda Advantage’s commercial credit bureau saw business credit demand drop by 4.4 percent in April, 1.3 percent in May and 10 percent in June year-on-year. June experienced the largest drop in credit demand in six months. July continued this downward trend falling 2.1 percent year-on-year.

Hamish Osborn, Head of Commercial Risk Products at Veda Advantage, said the small-to-medium business credit market remains volatile, with weak year-on-year credit growth in the June quarter despite the 2009/10 financial year up 2.4 percent higher than in 2008/09.

Mr Osborn said, “While credit demand is growing slowly in volume across 2010, it has not yet returned to pre-global financial crisis levels.  Last year may have been artificially bolstered by Government stimulus activity and based on this we can expect a drop off in year-on-year demand, although we did not predict the large drop off in June,” he said.

These latest results show business credit demand is 9.8 percent below the April to June quarter 2007 and 6.1 percent down on the same quarter (April to June) 2008.

“This index demonstrates the market remains cautious,” Mr Osborn said. “Small business seems to be hesitant in the post global financial crisis economy despite some large contracts and firm pricing agreements in the export and bulk commodities markets which are currently boosting the economy.

“Tough lending practices have not been relaxed since the global financial crisis, which means companies with tight credit control and cash flow management are probably more likely to be granted credit from financial institutions.  In light of this we urge all businesses to incorporate credit risk management practices to maximise liquidity and to minimise the threat of taking on bad debt,” Mr Osborn said. 

Trade credit and business loans, which account for 70 percent of all credit applications, remained flat, while asset finance recorded the largest decline in credit demand, down by 21 percent.

All states decreased in credit demand, while the Northern Territory was up 1 percent year-on-year. South Australia and the Australian Capital Territory recorded the steepest decline falling by 10 percent year-on-year. They were respectively followed by New South Wales which was down 8 percent, and Victoria and Queensland each down by 4 percent.

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Paul Hayman

Paul Hayman

Paul is a staff writer for Dynamic Business online.

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