Implications for rural and small enterprises in the fortestry...

Implications for rural and small enterprises in the fortestry industry, and the effect that these stupid banks and managers in this country.
Rudd can ease pressure on SMEs

Adele Ferguson | June 24, 2009

Article from: The Australian

MORE than 150,000 companies, mainly small and medium-sized, risk failure in the next 12 months as their big business customers delay paying invoices and banks squeeze them on interest payments and tighten the criteria for business loans.

Research by the country's leading credit reporting company, Dun & Bradstreet, released exclusively to The Australian, shows that almost 27,000 Australian firms have had their risk profile downgraded since April. There have been more than 155,000 downgrades over eight months.

Meanwhile, the number of firms now at higher risk of late payment has climbed to more than 172,000 at a time when business-to-business payment terms are at their longest in seven years -- 57.6 days, almost double the 30-day standard.

The doom and gloom was echoed in JPMorgan and Fujitsu Consulting's latest report into SMEs, which says smaller companies have become increasingly pessimistic about their profitability.

The report reveals that the SME sector has come under significant pressure as a result of the global financial crisis and this has manifested itself in SMEs having difficulty getting access to credit.

Two of the three problems -- late payments and banks squeezing small business -- could be easily fixed by the federal government. It could take a stand and introduce a Late Payments Act to tackle tardiness by big business customers, and theproblem of higher bank fees and interest rates could be resolved by opening up securitisation markets to increase competition.......................
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A Reserve Bank research paper released last week shows that the Big Four's profit margins are growing for the first time in a decade, largely because the SME sector is bearing the brunt of the downturn.

Indeed, the banks have increased many business rates while restricting access to credit across the board and thus sending a multitude of businesses broke.

"Banks have cut variable housing loan rates more than the fall in their cost of funds but reductions in business lending rates have been less," the RBA says.

The banks are increasing the level of security they require -- either via injections of additional cash from their customers or by cutting the ratio of funding to the value of an asset. With asset values falling, that means the amount available may be drastically reduced just as cashflow is faltering badly.

The Dun & Bradstreet data reveals that firms in the electric, gas and sanitary services, mining and forestry sectors have suffered the most, with more than 20 per cent at increased risk of financial distress since October 1.

Payments in the electric, gas and sanitary services sector were the slowest in the March quarter at 61.8 days, two days longer than the same period last year.

The manufacturing, communications and mining sectors also experienced significant payment downgrades, at 19 per cent for the manufacturing sector and 17 per cent for the communications and mining industries.

SMEs are the lifeblood of the economy and the traditional generators of jobs. They contribute more than 30 per cent to GDP and employ half the country's workers, or 5.5 million people.

If this sector starts to shake, it will have massive implications for consumer confidence and economic growth, despite the Rudd government's stimulus package and the further cut in interest rates.

Kevin Rudd has repeatedly referred to the importance of the SMEs and the crucial need to get private credit flowing as a precondition for economic recovery. Here's his chance.

http://www.theaustralian.news.com.au/business/story/0,,25680819-12829,00.html