Cough up credit

So what is going to make this government listen? Ask any entrepreneur you meet and they will tell you of the hurdles they are going through to get money from the banks. Now a new survey out this morning from D&B provides a stark warning. About 20% of Australian executives say that they had less access to credit in the last quarter. And one in five say that access to business credit is the most important issue for them in the quarter ahead, with many fearful about rising interest rates.

Managing director of D&B, Christine Christian says the problems with accessing credit is having a big impact on the growth plans of business. “We are seeing capital expenditure fall, inventories dropping, weaker expectations, new job creation is down somewhat and we are seeing the growth in capital investment fall,” she says.

The key issue here is that the banks have not sufficiently loosened credit policy to allow businesses to grow and this will act as a hand break on future growth. “We will see a reduction in mergers and acquisitions, in start-ups, a reduction in investments as growth plans for many businesses are curtailed.”

The other issue that I am sure many business owners have noticed – and indeed are doing – is to hoard cash. If you can’t access credit then you preserve cash, which leads to companies sitting on lazy balance sheets and playing a wait and see game.

Surely after the trials of the GFC we don’t want to end up in a stagnant market where we all have to sit on our hands.

Other countries have deemed the problems with banks and credit a “market failure and their governments have stepped in. Many OECD countries have introduced a government-backed guarantee that has helped SMEs access finance.

But our government has dismissed that idea. Why? Well, first of all the problem is mainly about perception, says Emerson.

“How come lending has returned to high levels if there is such a problem with access to finance?” he told a roundtable I was hosting several weeks ago.

Secondly any move by government to back loans to small business made him concerned about “moral hazard”. The guarantee, according to Emerson, encourages lending risky practices.

Astonishing isn’t it? Banks and financiers around the globe have been lending and borrowing to all sorts of dodgy institutions using risky financial instruments which has got us all into this mess. To help the recovery the government then gives our banks a government backed guarantee that let’s them access funds cheaper than non-banks thus ensuring that competitors have no level playing field. And then the banks won’t lend it on – or if they do, the money is too expensive with too many hoops to jump through to get it.

The obvious questions are these: why does the minister see a government guarantee as a moral hazard when other comparable countries see it as commonsense? How long is Emerson going to claim the problem is just “perception” when surveys, road shows and roundtables all point to the fact that it is a reality? And what is the responsibility of banks to lend to small business given that they have an advantage in the marketplace?

Complex questions but entrepreneurs need to know there might be possibility of change and assistance.