Businesses are avoiding extra debt as firms become more conservative with their finances due to tighter access to credit and the economic downturn, a credit information provider says.
Veda Advantage Business Credit Demand index released this week showed applications for business credit fell 8.3 per cent during the March quarter of 2009 compared to the corresponding period in 2008.
This was the largest quarterly fall since Veda started its series in 2004.
Veda general manager Russell Evans said the more cautious attitude towards debt was not surprising given the sharp deterioration in the economy.
“What we are seeing from our customers is Australian businesses appear to be behaving in a conservative manner rather than pessimistic,” Mr Evans said.
Business credit grew by an annual rate of 4.1 per cent in March, Reserve Bank of Australia (RBA) data revealed.
It was the slowest rate of business growth since August 2002, when business credit grew by annual 3.3 per cent.
Mr Evans said 61 per cent of business surveyed in Veda Advantage’s business sentiment survey for March were unlikely to apply for credit in the next 12 months.
“Sixty-two per cent of those respondents said they were not affected by liquidity or cash flow problems, while 58 per cent said they were not exposed to bad debt problems.
“All-in-all, the business climate for them is not drastic, but they are going to shy away from taking extra debt because of the current economic climate.”
In its May quarterly statement on monetary policy, the RBA forecast the local economy would be in recession for a year before a gradual recovery by the end of 2009.
Mr Evans said it was time for firms to be conservative as the economy was at its weakest point since the last recession in the early 1990s.
“Businesses are shying from taking on debt, which means they are now relying on their own working capital and cash flow to run their businesses,” he said.
“That puts a lot of pressure on organisations to be able to transfer all their invoices into cash flow and make sure they are tight terms with their customers.”