Credit crisis continues for private business as banks clamp down

A new survey has revealed more than 81% of companies say difficulties in accessing credit could stop them meeting their growth targets in the next year, as banks continues to clamp down hard on Australia’s medium-sized companies.

PricewaterhouseCoopers’ bi-annually Private Business Barometer has revealed that more than 60% of businesses have had their debt levels reviewed by their banks during the last six months.

Half of the respondents said the banks had been more restrictive in regards to debt covenants, while more than 45% have had their loan rates increased. Almost 30% said they had been asked to put up additional security by the banks.

PwC partner Greg Will says that while banks have attempted to get closer to their customers to understand their financial position, too often the banks have refused to back strong, well-positioned businesses simply because they don’t fit in with the tighter lending policies.

And while the banks may be claiming things are now back to business as usual for SME clients, the reality is far different.

“They are taking an inordinate amount of time to process information and asking for a lot of documentation, such as business plans,” Will says.

“They are not actually looking at the commerciality of a business, they are looking at their lending policies and being very black and white.”

The respondents to the survey of 758 businesses showed the banks’ treatment of SMEs will have a real effect on companies as they try to come out of the recession.

While businesses reported sales and profits grew by 6.8% and 5.8% in the last 12 months, just over 43% of businesses said they missed their targets because of a lack of serviceable funding.

And while businesses are aiming at profit growth of 7.3% and sales growth of 6.6% in next 12 months, four in five says credit issues could prevent these targets from being met.

While private businesses are keen to invest it would appear most will hold fire for the time being. Just one in six say they will definitely increase staff numbers this year, while 45.4% of respondent say they will concentrate on organic growth, rather than expanding through new products, new markets or acquisitions.

Not that many companies have much of an idea on where to take their business as the economy improves – the survey reveals a staggering 80% of companies do not have a recovery plan.

Will says this lack of planning has hurt some companies during the downturn, and will continue to do so.

“They are like a sailing boat on this big rough sea. The sea is taking them where’s its taking them, but they are not in control. Now there’s a bit more stability, they are looking back and seeing that they are way off course.”

Will says many companies confuse planning around sales tactics, marketing and products with big picture, strategic thinking.

“They look at the day-to-day issues and that’s what they think of as planning, they don’t look at the strategic side. But it’s like anything – the little day-to-day things might change, but the long-term direction shouldn’t change too much.”

One positive to come out of the downturn is that companies have gone back to basics, focusing so closely on cashflow and debt that debt ratios are now down to an average of 30%, the lowest in the barometer’s history. Will says this means companies will be well placed to endure a few more rate rises.

He also notes some companies have built up war chests of available funds that were supposed to be used to acquire weakened competitors. However, fire sales have been few and far between, meaning companies are likely to hang on to any excess funds for awhile.

Overall, Will predicts 12 months of caution as companies see where that storm sea takes them.

“What we are seeing and hearing is that the downturn has definitely bottomed out, but things will take a long time to pick back up.”

Don’t forget to register for the SmartCompany webinar this Thursday 22nd October at 2pm – Are you using change as an opportunity to grow? Insights from the PricewaterhouseCoopers Private Business Barometer.