Changes to lending rules which followed the GFC and the introduction of the National Credit Code , in conjunction with Tax Office crackdowns on small businesses have caused a 6 per cent increase in the number of Australian companies going under.

Australian Securities and Investments Commission insolvency figures, released yesterday show 9829 companies entered external administration in the 2010-11 financial year, the highest figure since the peak of 10,005 during the global financial crisis.

Businesses who are experiencing tough retail conditions are not finding an understanding ear with the banks, who are making it far more difficult for borrowers to qualify for loans even where the borrower has plenty of equity in their home.

The leader of ASICs insolvency team, Adrian Brown, said banks in an effort to  prevent client bankruptcies have gone some way to meet stable clients, in some cases allowing facilities to be rolled over without the provision of further financials.

In addition to borrowing from banks, Australian companies are exposed to US credit conditions through their heavy reliance on North Americas private placement market, the source of a third of the Australian corporate sector debt raised last year.

About $6 billion of the $21 billion in Australian corporate debt that needs to be refinanced next year is sourced from the US private placement market, with $7.2 billion coming from banks, according to research released by Moodys in March.

While large corporates are able to issue bonds and borrow offshore, the smaller companies that make up the bulk of insolvencies depend on bank finance. The Australian government has introduced tough lending regulations which has meant that much of the low doc home loan business acceptable in the past would be declined today. It is not unusual for small business owners to resort to using the equity in their homes to finance their business debts however today such financial solutions are more difficult to implement and are more costly than in the past.

Smaller businesses were finding it more difficult to borrow. For example, you continue to see not as much finance available for property development, particularly suburban-type property development, while for more blue-chip properties youll see therell be market finance available.

Ferrier Hodgson partner Morgan Kelly said small to medium businesses were having difficulty borrowing and had also been hit by changes in workplace laws, the threat of a carbon tax and the ATOs crackdown.

He said banks were also concerned about concentrations of risk in specific areas, such as commercial property.

In theory banks want to lend money unfortunately the people they are prepared to lend to do not need to borrow.

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