Debt Finance Requests

Transcription

1 Chapter 4 Debt Finance Requests A full set of tables is available in the Statistical Tables section. Please view Tables 1 to 8 in conjunction with this chapter. 4.1 Requests for debt finance Thirty-four percent of New Zealand businesses sought additional debt fi nancing in the 12 months prior to August The proportion of businesses requesting debt fi nance was lower for small businesses. Twenty-nine percent of businesses with between 1 and 5 employees requested debt fi nance, compared with over 40 percent of larger businesses. The vast majority of debt fi nance requests made resulted in finance being obtained. Overall, 90 percent of debt fi nance requests made by businesses resulted in either some or all of the amount sought being received. Of those which did not receive the fi nance they had requested, the main reasons were insuffi cient income or cashfl ow, and insuffi cient collateral or security. The proportion of fi nance requests which were successful was high across businesses of different size, age and industries. Figure 4.01 shows the proportion of debt fi nance requested and received by businesses of different sizes. Figure 4.01 There can be a number of reasons why businesses may not request debt fi nance, and in some cases, there may be more than one reason. The most common reason, recorded by 85 percent, was that additional fi nance was not needed. The next most likely reason for not requesting debt fi nance was that the business or its owners don t like to be in debt (24 percent). All other reasons, such as, feeling the request would be turned down, fi nding the process of applying too diffi cult or time consuming, considering the cost too high or the fact the business was already near or at its borrowing limits, received much lower ratings. There was again some variation in responses by different size businesses. Ninety-seven percent of businesses with more than 100 employees indicated that they didn t request additional debt fi nance because it wasn t needed, whereas only 83 percent of businesses with 5 employees or less gave this as a reason. These smaller businesses were much more likely to not request fi nance through not wanting to be in debt than businesses with more than 100 employees, at 27 percent and 9 percent, respectively. The variation in response across different size businesses is shown in Figure

2 Figure Types of debt finance There are a number of different types of debt fi nance which are available to businesses which seek it and businesses may seek one or more of these types of fi nance. The most popular were bank overdrafts, which were a source of debt fi nance for 36 percent of the businesses which requested it. Other common sources were long term loans at 27 percent, leasing or hire purchase agreements and increased credit facilities or limits, both 24 percent. Short term loans and credit cards were the least common of the sources specifi cally named, at 8 and 6 percent respectively. Results are shown in Figure 4.03 below. Figure

3 4.3 Sources of debt finance There is a range of available sources that businesses may approach for additional fi nance. Such fi nance may be sought and received from one or more of these sources. The most common source for additional debt fi nancing was banks, which were a source of debt fi nance requested for 78 percent of businesses. Finance companies (including hire purchase or lending companies) were the next most common source and were used by 27 percent of businesses. All other sources of debt fi nance requested were much less common. These other sources include trade creditors or suppliers; existing owners; friends and family of existing owners; other individuals; other businesses; and any other sources. Each of these was the source of debt fi nance requested for 6 percent of businesses or less when viewed individually. When viewed as a group, they were the source of fi nance for only 18 percent of businesses. Similar results were apparent for the sources of additional debt fi nancing received. The most common source was again banks, which were a source of debt fi nance received for 72 percent of businesses. Finance companies were the next most common source of fi nance received and were used by 26 percent of businesses. All other sources of debt fi nance were much less common, each rating 5 percent of businesses or less when viewed individually. When viewed as a group, they were the source of fi nance for only 13 percent of businesses. These results are shown in Figure 4.04 below. Figure Uses of debt finance There are a range of purposes for which additional debt fi nance may be used. Overall, the most common purpose was for working or operating capital, which 46 percent of businesses listed as a use for additional debt fi nance. Other common uses were purchase of machinery or equipment (24 percent) and purchase of vehicles (21 percent), while the least reported uses were purchase of businesses and product or service development, both of which were rated at 5 percent. There was some variation across different industries, due to the different nature of their operations. Figure 4.05 shows how the use of the three most prevalent applications differs across the industry groups surveyed. 11

4 Figure Amount of debt finance When requesting debt fi nance, businesses may request an exact amount of fi nance, or may make a request for fi nance in general, without stipulating or knowing the exact amount. In addition, some businesses may request a specific known amount but in fact receive a greater amount than they originally requested (for example, through being granted a more generous credit limit). This means, when looking at the overall results from this survey, the total amount of fi nance received is slightly larger than the amount requested. In order to draw more exact comparisons between the amounts of fi nance requested and received, therefore, only those results for businesses which knew the exact amount of fi nance requested should be considered. The survey results show that those New Zealand businesses which knew the exact amount of their debt fi nance requests, requested a total amount of $5.5 billion of additional debt fi nance over the 12-month period to August The overall amount of debt fi nance received by these businesses was $5.3 billion. The amount of additional debt fi nance requested can vary, depending on the characteristics of the business (such as its size, age or industry) and the nature of its operations (such as the types of equipment or investment required in order to conduct the business s core activities). There was a strong correlation between business size and the amount of fi nance requested. The average size of debt fi nance requests for businesses with over 100 employees was $3.5 million, compared with just over $134,000 for businesses with between 1 and 5 employees. The fi gures for debt fi nance received were very similar, at $3.5 million and $132,000 respectively. 12

5 4.6 Chapter Summary: Debt finance requested 5.5 Chapter Summary: Equity finance requested 6.3 Chapter Summary: Both debt and equity requested 7.10 Chapter Summary: Current financial structure 8.4 Chapter Summary: Security Business Finance in New Zealand 2004 Debt Finance Requested Proportion of businesses Requesting debt 34% Receiving debt 31% Main reason debt not requested Not needed 85% Success rate of debt requests Instances 90% Money received 96% Main reasons debt not received Insufficient income/cashflow 31% Insufficient collateral/security 31% 4.6 CHAPTER SUMMARY: DEBT FINANCE REQUESTED 9.6 Chapter Summary: Financing characteristics Main type of debt finance requested Bank overdrafts 36% Main source of debt finance Requested from banks 78% Received from banks 72% Main use of debt finance requested Working or operating capital 46% Average amounts of debt finance Requested $232,000 Received $223,000 13

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