Banks happy to give credit to Australian businesses

9 October 2015
How many businesses apply for a line of credit? According to the ABS, approximately 16% of businesses in Australia applied for either debt or equity finance in 2013-2014, and 84% of those who sought debt finance (a loan that must be repaid) were successful.

Businesses were surveyed in the Business Characteristics Survey about what type of debt or equity finance they had sought, and whether or not it had been obtained. Debt finance effectively means credit, as it means any form of finance that the business must repay. Equity finance means finance provided in exchange for a share of ownership in the business.

Key trends uncovered in Australian business finance

Debt finance more common

Of the business that sought finance, 93% of businesses were seeking debt finance.

Equity finance harder to obtain

Just 40% of those businesses who applied for equity finance were successful in receiving it. Compared to the 84% success rate for debt finance, this is quite low. Given such a low success rate, it is not surprising that only a small proportion of businesses bothered to apply for equity finance at all.

Government assistance for businesses

12% of businesses received some form of financial assistance from the government. Rebates were the most common form of assistance, followed by grants and subsidies respectively.

What businesses are most likely to receive government funding?

  • Larger businesses were more likely to receive financial assistance, at 57% for businesses with over 200 employees, compared to a paltry 8% for businesses with 0-4 employees.
  • Arts and recreation businesses were most likely to receive some form of funding (25%).
  • Mining businesses were most likely to receive rebates and other tax concessions (23%).
  • Healthcare and welfare businesses were most likely to receive ongoing funding (12%).

Reasons for seeking finance

Businesses were surveyed about their reasons for seeking finance, regardless of whether or not they were successfully granted it. Businesses were able to select more than one reason.

Looking for help to get by

42% of businesses applied for finance to maintain their short-term cash flow and liquidity. This rate was significantly higher for businesses with 20-199 employees, at 51%.

Businesses in the mining industry were the most likely to seek finance to maintain short-term cash flow (62%).

32% of businesses were applying for finance to ensure the survival of their business. Businesses with 200 or more employees were less likely to apply to finance to survive, at just 12.5%.

Businesses in the agriculture, forestry and fishing industry were the most likely to seek finance to ensure their survival (44%).

Expanding the business

Businesses across the board were applying for finance to expand their business (18% in total):

  • 13% of businesses with 0-4 employees
  • 20% of businesses with 5-19 employees
  • 25% of businesses with 20-199 employees
  • 49% of businesses with 200 or more employees

9% of business were also applying for finance to introduce new goods and services and improve their processes and methods, including 20% of businesses with more than 200 employees.

Innovative businesses more likely to require additional funding

Innovation-active businesses were twice as likely as non-innovation businesses to seek debt or equity finance to expand their business, at 22% compared to 12%. Innovation businesses were also more likely to seek finance to upgrade their IT technology (14% compared to 5%).

Investing in new technology

Many businesses applied for finance in order to purchase additional new technology such as IT hardware or software (5%), other equipment or machinery (18%), and assets not related to expansion (5%).

The businesses more likely to apply for finance to buy new technology were those with more than 20 employees, with large businesses of over 200 employees being most likely.

As for existing technology, 20% of businesses applied in order to upgrade (11%) or replace (9%) their IT hardware or software. A further 40% applied in order to upgrade (11%) or replace (29%) other equipment or machinery.

Reasons banks are happy to lend to businesses

Business credit is growing at a rate of more than 5%, according to the RBA August 2015 Financial Aggregates and the March 2015 Financial Stability Snapshot. The high levels of approval for businesses seeking debt finance show that banks and other financial institutions feel safe lending to businesses, and view them as low risk finance consumers.

According to the Reserve Bank in 2015, businesses are presenting a lower liquidity risk for a number of reasons. First, fewer businesses are failing or making arrears and defaults, and businesses are showing less financial stress, thanks to our post-GFC economic recovery. Secondly, the gearing ratio of listed corporations remains near historical lows. Thirdly, business loans typically mature in a much shorter timeframe than individual loans for the same amounts, such as home loans.

Finding the best value in finance for your business

Canstar regularly researches and rates a range of financial products for business, and you can compare the current market offerings online using our website:

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