Three in ten Australian businesses say that capital constraints are hampering their ability to grow and function efficiently. Of those businesses which cited this issue, 52.4 per cent said they had fundamental problems accessing sufficient capital from banks, investors, other lenders and shareholders. It appears that banks are beginning to ready themselves on the restrictions of Basel III, and reducing the number of loans to businesses.
These are just some of the findings from the latest Alleasing Equipment Demand Index (the Index), which examines the current asset inventory and plans for future investment of Australian businesses. The survey also found that the lower corporate segment (annual turnover $20-100 million) struggle the most, with 30.0 percent citing it as an issue.
According to Alleasing’s Chief Executive Officer, Daniel Blizzard, businesses believe there are fundamental inefficiencies in the way capital is distributed in the Australian market.
“Providers of capital appear to have too much demand on limited funds, or they consider many businesses to be outside of acceptable risk parameters.
“More than half of the businesses suffering from capital constraints have told us they can’t access sufficient capital or credit to fund their expansion plans, which indicates there is still a lot of unmet demand. With the implementation of Basel III, banks will inevitably become more cautious on how many loans they grant. As a result, businesses will need to find alternative capital sources to continue to grow and remain profitable. ”
The Index also found that investment is the agenda for a greater number of businesses, compared to the prior round of research. Four in ten firms plan to increase their asset base in Q1 2017, but by a smaller percentage than previously indicated.
Daniel Blizzard went on to state, “Our research shows that 25.6 per cent of businesses plan to increase their asset base in the first quarter of 2017, with an average increase of 6.5 per cent.”
“SMEs are the most bullish, with 34.0 per cent stating they plan to increase their asset base, against 30.2 per cent in Q4, 2016. These results play into the economic uncertainty of the last few months. GDP fell 0.5 per cent in the September quarter, leading to speculation of a second quarterly fall, which would mean a technical recession. However, the December release of balance of trade figures noted the best result in almost three years.
“This paints a picture of a business sector caught between a natural desire to expand, and a cautiousness about overcommitting in an environment of uncertainty. Business sentiment is subdued as we wait to see how economic forces, both at home and globally, will play out in the initial months of 2017.”
Further evidence of Australia’s widely varying economy was evident in the latest Index results, with significant disparities between geographies and industries.
In Western Australia, for example, only 14.0 per cent of businesses intend to increase their asset base in Q1 2017, whereas in Queensland 16.5 per cent of businesses have the same intention. This compares to 30.0 per cent in NSW.
In terms of industry sectors, transport/storage and wholesaling were the most bullish, with 31.6 per cent of businesses in both sectors planning an increase, followed by accommodation, cafes and restaurants (30.7 per cent), and personal services (29.8 per cent). This contrasts with sentiment in the mining sector (17.4 per cent) and construction (20.9 per cent).
Download your copy of the Australian Equipment Demand Index.
NB. The research and publication of the Equipment Demand Index was conducted under Maia Financial’s previous name, Alleasing.
Equipment Demand Index is a quarterly report which interviews circa 500 Australian businesses turning over between $5 million and $250 million per year.
Alleasing is a leading, independent provider of capital solutions. Established more than 25 years ago, we have financed billions of dollars’ worth of assets, supporting the capital needs of government entitles and corporations across Australia and New Zealand.