Entrepreneurs likely to cut jobs as funding costs bite

Plunging consumer confidence and borrowing intentions among small and medium businesses is giving banks a cause for concern, according to a survey from JPMorgan and Fujitsu Consulting.

Plunging consumer confidence and borrowing intentions among small and medium businesses is giving banks a cause for concern, according to a survey from JPMorgan and Fujitsu Consulting.

JPMorgan banking analyst Brian Johnson says the high level of indebtedness among SMEs (lending to small businesses has grown from $40 billion in 1996 to more than $170 billion today) and the re-pricing of SME loans by the major banks (which have increased loans by 60 basis points above the Reserve Bank’s official interest rate rises) will force SMEs to examine their variable cost base.

“Looking at the current situation, as businesses face declining sales and rising costs, they may be forced to cut variable costs – such as the 45% of the workforce that are employed on a part-time basis in currently ‘pressured’ sectors such as retail and hospitality,” Johnson says.

The survey shows SME lending accounts for 24% of total business lending and has become an important area of growth for Australian banks in the last five years. As lending to big corporates becomes more difficult, Morgan expects the SME sectors will become a new market share battleground for the banks.

But he warns the level of write-offs amongst SMEs has escalated since 2005 and will continue to rise as the economy slows.

Read more on consumer confidence