Sharp fall in SME credit growth

©iStockphoto/denisenko

CREDIT demand of Australia's small business sector fell sharply in June, with demand for asset finance plunging 21 per cent.

Veda Advantage's commercial credit demand index showed credit demand of small to medium enterprises (SME) in the June quarter declined 5.6 per cent over the same period in 2009, and fell another 2.1 per cent in July.

A surprise slump of 10 per cent occurred in the month of June, highlighting the volatility of SME credit demand which is running 6.1 per cent below the June 2008 quarter, the credit information agency said on Thursday.

SMEs with annual turnover of less than $1 million account for nearly 90 per cent of all Australian businesses according to research DBM Consultants.

Veda's index has tracked 6.3 million credit enquiries since 2004, and analysed demand across all account types.

Trade credit and business loans account for 70 per cent of credit applications, and these remained flat in the June quarter 2010, Veda said in a statement.

But asset finance plummeted 21 per cent, pulling down the overall result.

Veda's head of commercial risk products, Hamish Osborn, said credit growth during 2009/10 had tracked higher than in 2008/09, when the impact of the federal government's stimulus activity may have artificially buoyed the data.

"Based on this we can expect a drop off in year-on-year demand, although we did not predict the large drop off in June," he said.

SMEs remain hesitant of seeking more credit despite some large contracts and firm pricing agreements in the export and bulk commodities markets currently boosting the economy, he added.