New Zealand’s small business owners are increasingly using personal credit cards to finance their companies, indicating the fragile state of the country’s economic recovery, new research showed.
The finding came from a survey of 1,808 small and medium-sized companies as part of a study into how they were coping with the recession.
Seventy-eight percent of the respondents said they were using credit cards to fund their business operations, up from 67 percent the previous year, the survey conducted by Massey University’s Center for Small and Medium Enterprise Research found.
The Center’s Director David Deakins said personal credit cards were now the most widely used form of business finance alongside trade credits.
“These findings reflect the fragile nature of the recovery as the recession continues with businesses not wanting or not able to access a bank loan,” he said.
“For a business owner this is a relatively flexible way to finance cash flow and meet working capital requirements,” he said. “There is a risk they may get bad debt – particularly in times of recession – but if it helps cash flow over a temporary period it could be a good solution.”
The annual BusinesSMEasure survey of small and medium-sized firms in New Zealand also found that 25 percent of businesses surveyed had invested personal savings into their companies last year, slightly down from 27 percent in 2009.
Deakins said firms that were not growing had stopped investing personal savings into their businesses, indicating that some had exhausted that funding option.
More companies were still feeling the effects of the recession, the survey found, with 14 percent reporting they had not yet been affected, down from 27 percent the previous year. Deakins said this clearly indicated the depth of the recession and its prolonged effect on businesses.
Fifty-three percent of the firms surveyed were micro-sized (0-5 full-time equivalent staff), 244 percent were small (6-49 FTEs) and three percent were medium (50-99 FTEs).
About a third of the firms operated in the services and manufacturing sector while 12 percent were in construction and 22 percent in the wholesale/retail sector (22 percent). Just five percent were in the primary sector.
The report from BusinesSMEasure, Managing Under Recession: Perspectives from New Zealand Small Firms, also said the number of medium-sized firms that reported increased turnover rose considerably in 2010, indicating that more medium-sized firms were on the road to recovery compared with micro and small firms.