More SMEs knocked back for credit

The percentage of small businesses seeking, and failing, to secure external finance has increased over the years since the peak of the global financial crisis, analysis by the Reserve Bank of Australia suggests.

Using data obtained from Dun & Bradstreet (which produces credit analysis of tens of thousands of private businesses) and also from the Australian Bureau of Statistics, the RBA produced an up-to-date snapshot of those financing trends affecting small business. It published the research yesterday.

The study found that of businesses that employ fewer than 20 people and sought external finance (for example, from a bank) 10 per cent failed to secure it in 2010, which is twice the rejection rate of 2008.

Of those firms with between 20 and 200 staff that sought finance 16 per cent failed to secure it in 2010, up from a rejection rate of 11 per cent in 2008.

The RBA research reiterated well-known themes around small business funding, including their reliance of the owner's equity and retained profits, and the low likelihood of their using external debt.

When they do borrow, small firms are more likely to use a finance company or niche lender.

The supply of finance to small business remains pretty stable, at around 16 per cent of all business credit, the RBA said.

On the other hand, the cost of these borrowings has increased more for small business than for large business since the financial crisis.