Down to business...
Business - credit where it's due?
In one sense hardly a surprise that the pace of business credit has slowed - the chart was more or less turning parabolic prior to the financial crisis with total business credit more than doubling between 2003 and 2008.
I would argue that trends in business credit are largely a function of business confidence and decision-making - not a lack of availability of credit.
The data shows that total business credit increased to a new all-time high of a seasonally adjusted $773.5 billion in November 2014, but the pace of business credit growth remaining demonstrably slower than that seen prior to the financial crisis.
More than meets the eye for small business
Looking only at the share of total credit outstanding as categorised by the Reserve Bank is too simplistic in any case.
As a small business owner I know from personal experience it is much cheaper and more efficient for small business owners to secure a line of credit which is secured against property - regardless of its ultimate purpose or use - which in turn inevitably skews the data as it relates to small business towards the "housing credit" category.
For example, we have a pre-existing line of credit in UK which attracts interest at 1.50 percent - hell would freeze over before anyone chose a small business loan over credit attracting that rate of interest! The securing of business lending via home equity lines of credit is one trend that has to some extent distorted the picture at the small end of town.
If anything rising home prices over the past decade have been as much a boon as they have a burden, dependent of course upon home ownership status.
My business is a services operation and thus has no real need for debt capital - but if I did need leverage the banks would far more readily extend me a line of credit for $100k than a business loan - for even if my business failed and I decided to "do one" and leg it to the Bahamas, my house is going nowhere. With skin in the game there is a huge disincentive to default.
Certainly there has been no significant decline in the number of small businesses or in entrepreneurs taking that route.
The top end of town...and other funding matters
An expanding listed business today more commonly seeks investment capital via a Secondary Equity Capital Raising - particularly via a Share Placement, but alternatively through a Share Purchase Plan (SPP), a Dividend Reinvestment Plan (DRP) or a Rights Issue.
Business credit as a share of total outstanding credit has declined from around 50 percent two decades ago to only 33 percent today. Rewinding the charts back two decades, the Australian Securities Exchange (ASX) data reveals that capital raisings have taken on an increasingly eminent role of business funding since that time.
Initial capital raised on a rolling annual basis is at the highest level seen in over a decade. The $8.5 billion monthly spike in November 2014 is largely accounted for by the Medibank foat - the calendar year's largest listing which netted the Federal Government $5.7 billion.
Exchanges in London (LSE), New York (NYSE), Canada (TMEX) and Hong Kong (HKEx) have each revealed a trend towards the raising of equity capital since the 1990s.
And so too particularly has Australia's own securities exchange, the ASX.
It's also worth noting that the component companies of the ASX are not solely behemoths - the respective component indices comprise a great many small-, mini- and micro-caps.
The historic data recording the number of IPOs reveals the rising trend until the impact of the financial crisis through 2008-9.
OK so we haven't exactly seen a return to the heady days of "cash box floats" (thankfully!), but the number of new entities listed on the ASX has now rebounded solidly with new admissions increasing from 83 in 2012 to 110 in 2013 - and with the number of new listed entities admitted in the current financial YTD tracking significantly higher once again up to the most recent monthly data reported at November 2014.
The favoured method of secondary capital raising - the share placement
It is abundantly clear that listed companies more readily look to secondary raisings from equity markets today than was ever the case previously.
In particular, listed companies are now favouring Share Placements - and to a lesser extent Rights Issues, SPPs and DRPs - both as a share of total secondary raisings and in absolute terms.
A function of business confidence
This is only a flavour of why looking purely at business credit growth is too simplistic a measure for analysis of the health (or otherwise) of Australian business. Sources of funding remain available for businesses with the confidence (or lack thereof) to take on the challenge of investment and expansion - but it has been sourced increasingly from the equity markets.
I previously looked at why housing inevitably now takes up a greater share of bank credit in a little more detail here.
However this is likely to take many years to play out. The share of housing credit to investor nudged up to a new record high 34.2 percent in November 2014.
Total housing credit continues to rise at a fair clip implying that dwelling prices should record solid gains in certain capital cities in 2015 - particularly Sydney and Brisbane in our view.
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