Credit Availability
Applying for New Credit
One-third (34.2%) of the surveyed businesses had applied for debt or equity finance in the previous three months. Smaller businesses were less likely to have applied for finance, with 25.4% of small businesses having applied compared to 39.4% of large businesses.
In order to put these figures in context, they can be compared to those obtained in the Business Finance Survey 2004 (2004). The BFS had a slightly different structure, surveying businesses between 1 and 499 employees and excluding some industries (Financial services). The table below shows that although the overall figures are the same, this is a compositional effect (the BFS is weighted and stratified to make it nationally representative) and is driven by the greater proportion of larger businesses in the CES.
Comparing like with like, applications for finance appeared to have fallen in every size group. Indeed total applications (debt and equity) were lower in all size groups in 2009 than applications for debt in 2004 (except the 100-499 size group, where there had been a slight increase).
Comparing applications for finance with the BFS (% of businesses applying for finance)
Business Finance Survey 20041 |
CES 2009 |
| Employees |
Debt |
Equity |
Employees |
Debt/Equity |
| 1-5 |
29 |
5 |
1-5 |
27 |
| 6-20 |
42 |
7 |
6-19 |
38 |
| 21-100 |
44 |
7 |
20-99 |
36 |
| 100-499 |
45 |
5 |
100-49 |
47 |
| Total |
34 |
5 |
Total |
34 |
When asked why they had not applied for debt or equity finance, three-quarters (75.9%) of respondents answered that they had no need for additional finance. This figure was lower for smaller businesses than larger ones (67.1% compared to 83.3%). These figures are lower than those in the BFS in 2004. In the BFS, 83% of businesses with 1-5 employees and 97% of businesses with 100-499 employees said they did not apply for debt finance because they did not need it (the figures for equity are higher still).
The next most common reason for not applying for debt finance was that the business or business owners did not like to be in debt (21.4%). As might be expected given the likely ownership of each type of business, this was a much more common reason given by small businesses (28.9%) than large ones (13.2%).
There were signs that smaller businesses were less likely to apply for new finance because they felt they faced some constraints. 14.5% of small businesses felt they could not afford to service debt and 13.2% said they were already approaching or breaching existing borrowing limits. The figures for large businesses were 1.5% and 4.6% respectively.
Of the 212 businesses responding that they had applied for finance in the previous three months, 59.5% had their applications granted as requested, 23.4% were granted with amended terms and 11.2% were granted but with a lesser amount of finance than was requested. 9.8% were refused completely. It was medium-sized businesses that were most likely to have their application granted as requested (67.7%), compared to small (50.9%) and large businesses (59.3%).
Existing Credit Facilities
Whilst applications for new finance are clearly important, they may be more of a threat to expansion plans (see below) than to the continued existence of the business. The survey also asked how existing credit facilities had changed in the previous three months. It had been reported that businesses had found credit drying up, whereas banks had countered that overall levels of credit had held-up or even increased. One reason for this may be that new applications or provision of credit had decreased, but businesses had taken-up increasing amounts of their existing credit facilities (e.g. they had increased the size of their overdraft). The results of this survey suggested that four times as many businesses (21.5%) had increased their overdraft/credit compared to those that had decreased it. 71.7% of businesses reported that their overdraft/credit had remained the same. The increase in credit was greatest in medium-sized businesses (29.6% of businesses reporting an increase) compared to small (18.9%) or large businesses (16.9%).
Another important impact that a credit crunch can have is through an increase in the price of credit. It appears that the impact of the decrease in the Official Cash Rate had balanced the impact of an increase in the risk premium on the price of credit, with just under half of the businesses (47.7%) answering that their interest rate or fees have stayed the same, while 44.7% had seen them decrease. Small businesses had benefitted least from the fall in interest rates with 38.8% of businesses reporting a decrease in interest rates or fees, compared to 47.4% of medium-sized businesses and 48.8% of large businesses.
Another way the price of credit can increase is through the requirement for increased collateral to be posted by borrowers. The collateral and security required had increased for 17% of businesses and stayed the same (81.3%) (it decreased for only 1.6%) of those surveyed. Collateral/security requirements had increased the most for medium-sized businesses.
Impacts on Business
When asked specifically how the availability of finance had affected their business 48.5% of respondents answered that their business had not been affected at all. Of those that had been affected, the most common effects were on longer-term decisions, with 22.6% of businesses putting expansion plans on hold and 17.6% putting reinvestment/refurbishment plans on hold. These figures were fairly consistent across businesses of all sizes.
Another set of responses to the availability of finance related to how businesses manage their employment levels. Of the businesses responding to the survey, 15.2% were laying-off staff, 15% had implemented a hiring freeze and 11.8% were reducing working hours. Small businesses reported that 10.5% of them were laying-off staff, 9.9% were reducing working hours and 6.3% were implementing a hiring freeze. Adjustments to employment policy appeared to be most important for medium businesses, with 20.3% laying-off staff, 20.9% implementing a hiring freeze and 18.3% reducing working hours. 15.5% of large businesses were laying-off staff, 19.9% had implemented a hiring freeze and 8.1% were reducing working hours.
It is important to note that these figures refer specifically to the impact of the availability of finance on business, not on the economic situation in general. That question is assessed in the next section and returns some quite different percentages.
Raising Finance
Just under three-quarters (73.7%) of surveyed businesses had made no changes to the sources of their finance as a result of the current economic situation. This figure is slightly smaller for small businesses (70.7%) than for medium and large businesses. Just under a quarter of businesses (23.1%) had looked into alternative methods of raising finance. This was most common in small businesses (25.5%) and least common in medium-sized businesses (19.9%).
When asked to compare the current situation to 12 months ago, 68% of respondents believed it was harder to raise finance now (30.5% found it a little harder, 34.2% a lot harder and 3.3% impossible). Increases in businesses' difficulties in raising finance were greatest for the larger businesses, with 27.5% of small businesses, 34.4% of medium businesses and 40.5% of large businesses stating that it was a lot harder.
Length of Payment
One important source of credit that is both outside the financial sector and important for businesses' cash-flow is ‘trade credit', that is the fact businesses do not always pay for goods and services immediately. If businesses take longer to pay their debts, this may improve their own cash-flow temporarily, but it has a negative impact on the business's suppliers. Businesses were asked how long, on average, they had to wait to be paid by debtors a year ago and how long they waited at present. A summary of their answers is presented in the chart below. Waiting more than sixty days for payment was a relatively rare thing in February 2008. Around 5% of businesses had an average wait of that long. This number had increased significantly in the interim. In mid-February 2009 almost 30% of businesses were, on average, waiting two months or more to be paid. This number was lowest for large businesses who may be able to exert more pressure on debtors or have better systems to deal with late payment. However, two-fifths of medium-sized businesses were waiting for more than sixty days on average to be paid by debtors. This increase may have a number of reasons, in particular the cash-flow problems of the debtors themselves. It could have serious implications for the cash-flow of many businesses and may also be associated with the increases in overdraft/credit outlined above.
Businesses waiting more than 60 days to be paid by debtors, %
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