Better, but there’s a catch

More good news on the economy today, with a survey from National Australia Bank showing business conditions for SMEs are finally starting to catch up to business confidence. We’ve been saying for awhile that although soaring confidence is great, it doesn’t mean much for business owners until it actually translates into sales.

But that seems to be starting to happen now. The NAB data shows that for the September quarter, large SMEs with an annual turnover between $5-$10 million recorded the strongest improvement in conditions, at 6 index points, up from -13. Small SMEs ($2-3 million) recorded an improvement from -7 to 4 index points, with mid-sized SMEs ($3-5 million) increasing from -6 to 3 index points.

These figures hardly indicate we’re back to boom times, but they do show that things are getting better.

However, there is a catch, and that was highlighted by the release of the minutes of the last RBA board meeting.

They show that the RBA still has its figure firmly on the interest rates trigger, with most economists tipping a rise in December and again in February (the RBA takes a nice summer break in January).

Now, nobody likes a rate rise, but it is a fair bet that these rises will hit SMEs harder than anyone else in the economy, simply because they have no wriggle room.

We all know how hard it is to get credit at the moment, which means companies that have loan arrangements with a bank can’t really afford to dump one lender and jump to the next. Mortgage holders can at least shop around for a new loan deal, large corporate can go to the equity market to raise capital, but the SMEs are stuck.

SMEs will simply have to accept the rate rises that are surely coming their way – and rest assured, it’s more than likely the banks will hike more than the RBA over the next six months or so.

Anecdotally, business advisers believe businesses should be able to cope with another rate rise, and probably one after that. But a series of four or five rises will make life particularly tough for many SMEs.