Lower interest rates necessary to help small business

Bibby pre-Christmas release

MEDIA RELEASE  

Lower interest rates necessary to help small business

Sydney, November 30, 2012 - With an uncertain economic environment ahead, the Reserve Bank of Australia (RBA) should be ready to cut interest rates next week and deliver a Christmas boost to small and medium sized businesses, with fresh data today revealing a decrease in business credit, according to Bibby Financial Services Australia.

The RBA today released data showing business credit decreased by 0.3 per cent over October 2012. In the 12 months to October, business credit increased by 3.3 per cent.

Gary Green, Director of Bibby Financial Services Australia, said lower interest rates would help boost confidence levels and borrowing by small businesses, with activity held back by uncertain economic conditions.

“While business credit has recovered during 2012, this recovery has been led by larger businesses, particularly listed companies, while borrowing by small businesses has been stagnant due to difficult trading conditions.

“A further cut in official interest rates would help boost small-business confidence and help to prompt greater levels of business investment, which has been restrained by worries about economic growth,” Mr Green said. 

“RBA data suggests the cost of borrowing probably remains too high for SMEs. There is a lack of confidence amongst SMEs about the economic outlook and their ability to repay debt, and furthermore directors are reluctant to put personal property on the line. SMEs also fear their customers or suppliers could become insolvent in this sluggish environment, as revealed by our own Bibby Barometer Small Business Survey,” Mr Green said. “Our recommendation to all SMEs is to increase their focus on cash flow and working capital, particularly with the Christmas holidays almost upon us.”

According to the RBA[1], the outstanding value of bank loans that are larger than $2 million increased by 10.5 per cent from June 2011 to July 2012 after declining over the previous 2.5 years. However, the outstanding value of loans valued at less than $2 million has remained largely unchanged since 2009.
 
Mr Green said lower interest rates would be likely to bolster the use of debtor financing by SMEs, which has been gaining in popularity in recent times. He also noted the increased average size of debtor finance facilities evident from the Institute for Factors and Discounters (IFD) statistics, suggesting that debtor finance is gaining acceptance amongst increasingly larger SMEs.
 
Over the year to September 2012, there was a 13.9% rise in the level of debtor finance or factoring, while the number of businesses seeking such finance had grown by 3.8%, according to data from the IFD. In NSW alone, debtor financing jumped by 48.2% from a year earlier.
 
“This indicates debtor financing is providing new levels of support to Australian businesses,” Mr Green said.

Debtor finance allows a business to quickly convert its unpaid invoices into cash, and is in effect a line of credit extended against the business' receivables, which is often one of the largest current assets on the balance sheet.

In a typical facility, the lender (or ‘debtor financier) will advance between 60-80% of the face value of the business' invoices within 24 hours, with the balance returned to the client on payment by the debtor. In some cases the lender also provides an accounts receivable service, helping to save time and accounts receivable cost.

ENDS

Media contacts

Rebecca Murray, FCR: t (+612) 8264 1002/ +61 423 338 005

Andrew Briggs, Bibby Financial Services (Aust): t (+612) 9310 8921/ + 61 403 096 807

Bibby Financial Services is one of the world’s leading global debtor finance specialists (also known as invoice finance, factoring, cash flow finance and invoice discounting) - a flexible and accessible cash flow funding tool for small and medium sized businesses.  With over 6000 clients in 15 countries worldwide, Bibby Financial Services is part of the Bibby Line Group, a family-owned business-to-business services group with origins in shipping dating back over 200 years to 1807.
 
Debtor finance is designed to improve business cash flow and support business growth by releasing cash tied up in unpaid invoices. Unlike other funding arrangements, no real estate security is required, making it more accessible for small and medium sized business owners.

Bibby Financial Services Australia has grown dramatically, in recent years at an average 20% pa, due to increasing awareness of debtor finance as a smart choice for improving the cash flow, and a commitment to providing flexible, tailored solutions quickly. It now serves clients nationally, via a network of offices in Sydney, Melbourne, Brisbane, Perth and Adelaide.

For more information on Bibby Financial Services please visit www.bibby.com.au or follow them on

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[1] RBA September 2012 Financial Stability Review.