Business borrowing intentions show strong rise: Survey

Small businesses are shaking off patchy economic conditions and hunting for funding for growth, according to a new survey from financial services research firm DBM Consultants.

The firm’s Business Financial Services Monitor shows that among companies with less than $5 million in turnover, the number intending to increase debt is now 20% higher than the number of firms planning to reduce debt.

This is a marked contrast to the results at the end of 2010, when an equal number of firms were planning to increase and cut debt levels.

The renewed appetite for debt is even more noticeable amongst micro businesses with less than $200,000 in turnover – there are now about one third more businesses planning to increase debt than cut it.

DBM’s chief statistician, John Hinchy, says the increase in appetite for debt is a reflection of confidence among SMEs and the fact that many banks have been campaigning hard for business borrowers.

“The GFC is fading as a front of mind issue and at the same time banks are out there competing harder for business dollars,” he says.

And while DBM’s report shows business sentiment continues to fall across all segments of the economy – with businesses with less than $200,000 in revenue the most pessimistic – Hinchy says that must be kept in perspective and confidence is far higher than at the height of the GFC.

“Let’s remember that businesses are still pretty optimistic. Sentiment is coming down very slowly, it’s not like they are in the depths of despair.”

However, Hinchy says concerns about the patchy state of the economy and fears of rising interest rates could “put the skids” on any increase in borrowing.

“The number one issue for businesses right now is costs, and interest rates are the number one cost worry.”

DBM says the increase borrowing intentions is good news for the banking sector. While micro businesses have relatively small borrowing needs, the sheer numbers make them an important segment of the market.

“Banks have been very much waiting for the turnaround. They were waiting for it, planning for it, and it didn’t really happen. But now we are starting to see some signs.”