Credit market slowly recovering for small firms

Start-ups’ prospects of securing credit appears to be gradually improving, with a new report predicting there will be “strengthening” demand next year.

Figures from Westpac showed just a 0.1% increase in credit to the private sector in August, with annualised growth over three months standing at 2.4%.

However, Westpac said that it believed the market softness was only temporary, predicting an improvement later this year and into 2011.

Business credit, which hit -2.9% in August, was due for a “sustained upswing” in the year ahead, Westpac forecast.

Its report says: “The fundamentals are positive. Australia is enjoying a significant income boost from a rising terms of trade which is likely to lift annual nominal GDP growth to 9% through 2010, up from 1% through 2009.”

Andrew Hanlan, senior economist at Westpac, told StartupSmart that he expected business credit to grow to 7% next year, with banks set to match the demand.

“There are pockets of the economy, such as commercial property, that remain a consideration, but Australian banks are open for business,” he says.

However, he added: “We saw during the financial crisis that there was a lack of appreciation of risk. Banks have a more realistic view of risk now.”

Separate figures for the Asia-Pacific region are also encouraging, with the number of venture financings outstripping the rest of the world.

A report from Datamonitor shows that the number of VC transactions in the Asia-Pacific region is set to increase by 15% by the end of 2010.