Credit squeeze is not over

NAB’s report on business conditions and confidence was, on the surface, reasonably good reading. Conditions and confidence have both stabilised, and while there are concerns about profitability and employment, at least things aren’t going backwards.

But tucked away in the report was a fascinating fact that should give everyone – entrepreneurs, politicians, consumers – something to think about.

Since November 2008 – when the GFC was at its height – NAB has been tracking business concerns about credit availability. Slowly, concerns about credit availability have been shrinking and a growing proportion of businesses have been reporting that they have no need for credit.

In yesterday’s report, the level of businesses that have no need for credit hit a whopping 67%. That’s the highest level since November 2008.

This raises some important questions.

Do those businesses really have no need for credit? Do they really have no desire to expand and grow their businesses?

Or have they given up on the idea of getting money out of the banks and have scaled back or given up on growth?

That question is impossible to answer definitively.

The banks will tell you that they remain open for business and ready to lend, but demand from SMEs have fallen.

SMEs tell a different story. We continue to hear of entrepreneurs who are either refused loans or face huge cost increases or are unable to get loans without putting their home up as security.

Two days ago I learned of an entrepreneur who owned a student accommodation site near a university in Melbourne. Despite its strong performance, when he went to roll over his debt facilities he was told his rate would rise 350 basis points or 3.5%. He told the bank where to go and went to a competitor.

The ability of smaller businesses to access business credit facilities clearly remains an issue.

“My experience is that there is plenty of demand but nothing is being offered,” SmartCompany reader Ray Keefe told us yesterday. “We recently extended our business overdraft which was secured against our personal home and it took twice as long as needed due to the banks’ delay in spite of the timetable they originally gave us. As a result we had to get bridging finance to cover that. And we did well as most of the other small business owners we know got knocked back completely. Orders in hand mean nothing now.”

Another reader, David, agreed.

“It is not an issue of small business not wanting to borrow, it is an issue of lazy banks only doing mortgage lending. The number of small business owners who are running an overdraft on their personal credit card because they cannot get a business overdraft is staggering.”

“They cannot get an overdraft because the bank does not look at business plans, or past revenues or anything like that, all they say is have you got a mortgage to secure the loan and if not we don’t want to talk to you.”

Are these isolated cases or symptoms of a wider problem? We can’t say definitively, but let’s make this very clear – the number of stories we hear of SMEs being knocked back by their banks in some way shape or form is not falling.

Credit, particularly in some sectors and for smaller businesses, remains difficult to get.

Most worrying about the NAB data showing 67% of businesses have no need for credit is the idea that firms are shelving growth and investment plans.

If SMEs scale back borrowing and scale back growth and investment, then their ability to create jobs will be hamstrung. The longer this continues, the greater the long-term impacts will be.

This is an area governments need to keep a close eye on. Just because businesses say they don’t want credit does not mean the credit squeeze is over. Far from it.