Australian SMEs Return to Equipment Financing

Australian small and medium-sized enterprises (SMEs) are reversing last year’s declines and forecasting encouraging growth of 4.8% in their asset financing volumes over 2013, according to research from industry analysts East & Partners.

East’s annual
Asset & Equipment Finance Markets report
shows that while SME volumes fell by 1.3% last year they are rebounding as businesses take steps to improve their cash flows and remove assets from their balance sheets. SMEs were the only segment to post negative volume growth in 2012.

The 4.8% growth for the SME segment compares to whole-of-market forecast growth of 6.6%, with the corporate segment – comprising enterprises with annual turnover of A$20m to A$720m – the most bullish with a 8.7% forecast increase. The average forecast increase across all segments for 2013 is 6.6%, against growth of 1.3% last year.

SMEs are also reporting that as a proportion of their total borrowings, asset and equipment finance will move from 24.1% in 2012 to 25.5%. This is against a total market average of 22.8%.

Across the total market, cash flow continues to be the most important driver for equipment financing demand and is increasing in importance, cited by 68.8% of businesses compared with 62.2% last year.

Removing assets from the balance sheet is the second ranked driver, but the percentage of businesses identifying this as a driver fell from 27.9% last year to 23.5%. The age of existing equipment increased as a driver, moving from 18.8% to 22.9%.

“We continue to see signs that the SME segment is starting to stir, and move out of the defensive and de-leveraging mode it has been in following the global financial crisis and its aftermath,” said Lachlan Colquhoun, head of markets analysis at East & Partners.

“SMEs also overwhelmingly prefer their equipment finance provider to be their principal lender, so banks prepared to support SMEs with lending can look for some cross-sell opportunities with equipment finance.”

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