Australian businesses have flagged the lending crackdown as the greatest risk to growth, according to new research.
Research from Ernst & Young’s annual Growth Barometer, which surveyed 2,766 business leaders across 21 countries, has revealed that almost a quarter (24 per cent) of Australian businesses consider reduced access to credit the greatest external risk to growth, up from 6 per cent in 2017, and 8 per cent higher than respondents from the rest of the world (16 per cent).
“This data demonstrates that there’s a real perception among our medium-sized businesses that banks have started a pre-emptive lending crackdown that is increasing the cost and reducing the accessibility of direct financing,” EY Oceania growth markets leader Rob Dalton said.
The research also found that 48 per cent of Australian respondents noted that the greatest internal risk to growth is insufficient cash flow, compared to 34 per cent of respondents from the rest of the world.
According to EY, the threat of insufficient cash flow “may reflect the pressure to stay abreast of change, as evolving sales cycles, industry convergence, unpredictable online buying patterns, the move to e-commerce and the need to invest quickly to satisfy developing consumer preferences all increase demand for ready money”.
Mr Dalton has also suggested that the credit crackdown could be prompting Australian businesses to consider alternative funding options, including initial public offerings (IPOs).
The research revealed that 76 per cent of Australian respondents are considering an IPO, compared to 44 per cent of respondents from the rest of the world.
“Companies are exploring their options and alternative forms of finance beyond bank lending,” Mr Dalton continued.
“There’s a huge amount of private capital out there looking for a home, and middle market businesses are looking to access this to fund their growth.”
Further, amid the federal government’s continued push for Senate approval of its proposed corporate tax cuts, which would reduce the levy from 30 per cent to 25 per cent by 2026, half of the respondents ranked cutting corporate taxes as the best thing the government could do to boost growth, compared to 29 per cent of the global respondents.
Reflecting on the data, Mr Dalton argued: “It’s important we ask ourselves why Australian firms are concerned about cash flow, credit availability and corporate taxes. We need regulatory conditions which promote growth rather than dampening it.
“We need to afford these businesses every opportunity to expand, create jobs and create wealth that can be shared throughout the community.”
The analyst continued: “We’re continuing to see the impact of increased regulation of financial services driven by continued post-GFC measures and an increased focused on culture and conduct through activities like the royal commission.
“While it’s important the sector is well regulated, we need to make sure we’re providing a framework that encourages growth for our middle market companies, the engine of our economy.”
However, despite such concerns, 45 per cent of Australian business leaders are expecting revenue growth of 10 per cent or higher, with improved supply chain and operations efficiency considered as the biggest growth accelerator.
Additionally, overseas expansion was cited as the top strategic priority for 32 per cent of Australian respondents, compared with 24 per cent from the rest of the world.