Business credit demand slides as start-ups hunt funds elsewhere

Overall growth in business credit applications eased to 4.5% over the year to the June quarter, a Veda report reveals, suggesting start-ups are bypassing business loans for other forms of credit.

The latest Business Credit Demand Index from Veda confirms there is still significant growth in business credit enquiries, but there has been an easing in the growth of business applications.

According to Veda, overall growth in business credit applications was 4.5% over the year to June, down from 8.8% in the year ended March.

Of all the states, WA continues to lead the nation in terms of growth in business credit, which increased by 8.7%, followed by NSW (5.4%) and Queensland (5.3%).

In contrast, Victoria is showing signs of weakness, with business credit increasing by just 1.8%.

Moses Samaha, Veda’s general manager of commercial credit and supplier risk, said firms may have “stalled” credit activity in anticipation of interest rate cuts and federal budget measures.

“A recent study we completed showed that business credit demand index has historically proven to be a good indicator of how the overall economy is travelling,” Samaha said in a statement.

“The latest data suggests a softening in the pace of real GDP growth after a very strong March quarter. This could mean that we will see a slowdown in GDP growth in coming quarters.”

According to the Veda report, business loan applications eased across all states in June, with WA showing the strongest growth (11.5%).

More surprising is the current strength of business loan applications in NSW (7.9%) and South Australia (7.1%), followed by Queensland (5%).

Victoria, however, has not shown any growth in business loan applications over the past year, and recorded the weakest result of all the states.

Meanwhile, asset finance enquiries have picked up over the past year. In fact, the growth in asset finance enquiries over the year to June (6%) was the highest for more than two years

It’s worth noting asset finance has been in a slump since the global finance crisis and, despite the latest rise, the level of asset finance enquiries remains well below its pre-GFC peak.

Queensland and WA are the strongest states with regard to asset finance – growing by 10.9% and 9.3% respectively – while the non-mining states of NSW, Victoria, South Australia and Tasmania are weaker.

“Asset finance has been in the doldrums since the global financial crisis, and this latest result represents the strongest pace of growth in asset finance over two years,” Samaha said.

“Whilst the recent increase is encouraging, the level of asset finance enquiries still remains around 20% below pre-GFC levels.”

Annual growth in trade credit also eased in June.

Growth in trade credit enquiries has generally been less cyclical than business loans and asset finance over the past few years, according to Veda, but annual growth for trade credit enquiries eased in June to 2.8%.

With regard to industries, businesses in the construction, manufacturing and retail trade industries account for the highest share of all commercial credit enquiries in the June quarter.

But Veda said the European debt crisis, coupled with concerns about slowing economic growth in China, still appear to be hurting the confidence of Australian businesses to borrow and invest.

“However, business credit applications have generally been on an upward trend since mid-2010,” Veda said.

“It’s likely that the full impact of the RBA’s most recent rate cuts on business credit are yet to be seen.”