28/10/2008 - 12:47

Business wary of taking on debt: survey

28/10/2008 - 12:47

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Businesses are shying away from raising debt in the face of uncertainty and volatility in global financial markets with credit demand in Western Australia falling over 7 per cent, a new survey has found.

Businesses are shying away from raising debt in the face of uncertainty and volatility in global financial markets with credit demand in Western Australia falling over 7 per cent, a new survey has found.

Business information service, Veda Advantage, says business credit, nationally, dropped 6 per cent in the September quarter compared to the same period last year.

Businesses in South Australia experienced the greatest drop off in credit demand in the September quarter, falling by 8 per cent over the year, while NSW fell by 6.6 per cent, Queensland by 6.4 per cent, WA by 7.6 per cent, and Victoria by 4.8 per cent.

The Veda Advantage business credit demand index, released today, shows businesses making inquires for credit fell rapidly during the quarter, dropping 2.6 per cent in July compared to a year earlier, 6.3 per cent in August and 9.5 per cent in September.

This follows a 2.4 per cent decrease in credit inquires in the June quarter and a 7 per cent fall in the March quarter.

"The fall in commercial credit applications indicates that businesses like consumers are feeling the impact of current market volatility and are wary of taking on more debt in uncertain economic times," Veda Advantage chief executive Rory Matthews said.

"The dramatic decline in credit inquiries is in line with current economic trends and the financial instability we've been experiencing in both Australian and global markets."

Property mortgage enquires experienced the largest fall in the quarter, tumbling 41 per cent compared to the same period last year, and 15.7 per cent against the previous quarter.

Hire purchase enquires were down by 10 per cent in 12 months to the end of September and 17 per cent in the quarter.

But 30-day account enquires increased by 3.9 per cent year-on-year and represented more than a quarter of all credit enquires.

" ... data suggests an increase in businesses opting for shorter forms of credit such as a 30-day loan, but we have noticed a sharp decline in fixed debt loans such as mortgages ... indicating that businesses may be nervous about locking themselves into longer-term debt while we are in a period of financial uncertainty," Mr Matthews said.

Credit card and seven-day account inquires both decreased by 16 per cent on the year, although the latter increased marginally when compared with the previous quarter.

The analysis is based on Veda Advantage's database of more than 6.3 million business inquires.

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