With the start of the financial year just days away, Veda, Australia’s leading data intelligence and insights company believes that the Federal Government’s asset write-off scheme will not be robust enough to assist all small businesses in FY13 – and those who do take it up potentially are exposed to higher credit risk.

“For those businesses who take up the incentive, there is also a risk of businesses overcommitting themselves as they acquire additional credit to purchase new assets,” Veda’s Head of Commercial Credit & Procurement Risk, Moses Samaha said.

The new small business instant asset write-off scheme introduced in the 2012/13 budget allows businesses with a turnover of less than A$2 million to write off each eligible business asset costing under A$6,500.  The purpose of the scheme is to provide an injection of funds for businesses to invest in new ideas.

Veda’s data shows that as the asset write-off scheme wound down in 2009 under the Rudd stimulus package there was a dramatic spike in asset finance.  However Moses Samaha said that he believed that there won’t be another asset finance spike in FY13 due to the asset value cap not being high enough. “Small businesses are certainly the most credit active in the market but we don’t think we will see a repeat of what occurred in 2009 due to the cap on the $6500 asset value.”

Veda’s Business Credit Demand Index for January-March 2012 showed that small to medium sized businesses (SMBs) generated the greatest amount of credit activity. SMBs account for only 6.5% of all businesses but they were responsible for 42% of commercial credit enquiries in the March quarter.  There was also an increased use of credit lines such as trade credit, corporate credit cards and over drafts.

A recent report from the RBA showed that small businesses were hit harder by the global financial crisis and have found it more difficult to recover than larger businesses in Australia which could drive SME’s to overcommit when trying to benefit from the new scheme.  To read the full story click on the link below.

Source: Veda Advantage a member of BIIA