Small business squeezed in credit crunch

Date: Feb 02, 2009
Document Type: Newsletter

As the global financial crisis continues to take its toll, The Australian Chamber of Commerce and Industry (ACCI) expressed concern at the availability of credit to small businesses.

In a statement dated 22 January 2009, Acting ACCI Chief Executive, Greg Evans cited Reserve Bank figures for 2008 demonstrating the pace of business lending fell from 23.7 per cent at the start of the year, to10.7 per cent by November.

Mr Evans reported ACCI members have faced difficulties in securing credit, stemming from increasing time frames and stricter lending criteria for applications. Credit problems are not limited to "greenfields proposals" either, with established businesses facing similar difficulties.

According to the ACCI, limited supply of credit also means small businesses are forced to put capital projects on hold; they cannot afford to invest in new working capital or expand their business. The ACCI warns this will affect the wider economy in the form of job losses.

"The current economic outlook is very challenging for business and it would be an extremely negative outcome if difficulties in accessing credit undermined otherwise viable capital expenditure plans," Mr Evans said.

The ACCI did not offer a specific proposal, but Mr Evans said "We are aware the government is sensitive to this issue and ACCI will further discuss measures to support credit provision to underpin business investment."

Rudd blames health of economy for lack of credit available to business

Prime Minister Kevin Rudd expressed similar concern at the lack of credit available to business and relayed the importance of credit to the health of the economy, referring to it as the "blood which flows through the arteries of the economy", in the John Batman Oration Address on 22 of January 2009.

"As banks suffer, so too does private credit, credit which is essential to support businesses to operate and grow, and to support household consumption," said Mr Rudd. "In recent months, global credit markets have all but dried up with credit growth at its lowest levels since the Second World War."

Small business interest group wants Banks to do more

In a statement released on 20 January 2009, the Council of Small Business Organisations of Australia (COSBOA) suggested Mr Rudd praise the efforts of small business owners. Many small business owners have taken a cut in their income in order to maintain staff levels and prevent redundancies.

The statement challenges major banks to pass on the benefits of government guarantees in the form of rate cuts to small business. If the banks do not pass on rate cuts, COSBOA asks government to either legislate, or pressurise senior management to do so.

COSBOA warns that "If banks continue to use small businesses to maintain the high salaries and bonuses of their executives' then unemployment will surely grow as small business owners attempt to limit their own costs and maintain their income."

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