Business Funding


  • About half of businesses said they planned to fund major investments, up from around two-fifths six months previously.
  • Lenders reviewed the debt facility of more than 61 per cent of businesses during the past six months, while 45.4 per cent of respondents had their loans repriced.
  • The average debt ratio (measuring total debt as a proportion of business assets) is now just 31.2 per cent, down from 41.3 per cent in February 2007.
  • Thirty-nine per cent of private businesses identified the cost of debt as the main difficulty faced when raising capital.
  • Despite repricing loans and imposing tougher credit criteriaon private businesses, banks have regained much of their appeal as a source of funding.



We’re still investing to grow, but it’s certainly with more caution and more risk coverage than we’ve thought about in years before. We’ve had to do that to get funding as the banks tightened up and it was harder to borrow money. This was despite our very good relationship with our bank, which is also a shareholder of the business.

In the past we’d say ‘we’re opening a store – please deposit funds in our bank account’. This year it’s been more about getting to a level of detail to convince them and because we haven’t got it wrong and we’re under-promising and over-delivering, we’ve been able to access funds even in the time when it’s been rather difficult.


We’ve just been to our bank to get money to buy a new technology platform. That was a reasonably easy negotiation for us because the bank understands that we’ve been quite financially conservative in the past and a very solid business rather than a risky proposition.

We could demonstrate to the bank what our business was through a strong plan and they knew us as stable and financially responsible.


There’s no doubt it’s difficult to access credit but if businesses can access it in equity, debt or through partnering, I think this time in the cycle is very attractive.

Our investment is going into systems to support our merchandise group. That is our single major focus
at this time.



Click on graph to enlarge
Investment plans rebound

Respondents are more inclined to make major investments in the business than they were in March 2009. In the latest round of the Private Business Barometer, 49.3 per cent of businesses said they had no plans to fund any major investments, down from 58.3 per cent six months previously.

Despite repricing loans and imposing tougher credit criteria on private businesses, banks have regained much of their appeal as a source of funding. This is most likely related to the growing number of overtures banks have made in recent months to deepen their relationships with existing business customers.

For example, they may offer the necessary debt to a customer as a part of a product bundle that also includes deposits or transactional services. However, respondents believe internally generated funding and existing shareholders are set to remain their main sources of finance as they plan to invest into the business in the next year.


Table 17: Sources of funding for major investments in the business
Cost of debt key capital challenge

Thirty-nine per cent of private businesses identified the cost of debt as the main difficulty faced when raising capital. Nearly one-quarter (23.9 per cent) said the availability of any credit was their top problem in this area.


Table 18: Main difficulties encountered in raising capital
Businesses face stricter credit requirements

Concerns about the cost and availability of credit reflect private businesses’ experience during 2009. Lenders reviewed the debt facility of more than 61 per cent of businesses during the past six months, while 45.4 per cent of respondents had their loans repriced. In addition, one out of every two businesses said banks were stricter in enforcing debt contract covenants and 29.3 per cent said their lender had demanded they put up additional security to back up existing debt.

By forging a strong relationship with their financiers and consulting with them regularly on the position and outlook, owners and decision-makers can ensure their financiers are comfortable with the direction of a private business. This is particularly important when economic growth slows and access to finance tightens.


Table 19: Bank initiatives experienced by businesses in the past six months
Debt ratio falls

Private businesses now have the least debt relative to their assets since the Private Business Barometer started in February 2007. Businesses’ debt ratio – which measures total debt as a proportion of business assets – is now just 31.2 per cent, down from 41.3 per cent in February 2007. This is most likely a result of businesses reining in growth and expansion plans and concentrating on their fundamentals until the economy recovers.


Table 20: Average debt ratio


Figure 14: Average debt ratio
(total borrowings/total assets)