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Business Finance in New Zealand 2004
Chapter 2
Survey Overview
2.1 About the survey
The Business Finance Survey 2004 had the following core objectives:
• To determine the capital structure of firms
• To identify the sources of finance used by firms, and
• To understand the recent financing experiences of firms.
A sample of businesses with between 1 and 500 employees in a wide selection of industries were
surveyed. Businesses with no employees were not surveyed in order to limit respondent load for
small businesses. Participants were asked to include details of all requests for finance, whether fully
approved, partially approved, declined or withdrawn.
Previous work on New Zealand’s financial system has almost exclusively focused on the supply
side of the market.1 This report presents information from the demand side of the market. It aims to
uncover the types of finance firms are requesting, how successful they are in making those requests
and the sources of finance. Uncovering data on finance ‘gaps’ or difficulties firms have in successfully
receiving finance is important as it will help determine the extent to which particular categories of
firms, if any, are systematically disadvantaged with respect to financing.
2.2 The New Zealand context
The results expressed in this report reflect the fact that New Zealand is a country of predominantly
small businesses, as shown in Figure 2.01, though the proportion of smaller businesses is similar to
other OECD countries. As at February 2004, just over 96 percent of all businesses had 19 or fewer
employees. Almost 87 percent employ 5 or fewer people.
Figure 2.01
Covered by Business Finance Survey
Source: Statistics New Zealand Business Demography Data, 2004
An industry perspective is also important when considering business finance. The results of the
survey show varying finance experiences and preferences across different industries.
1 Arthur Young (1991); Coopers and Lybrand (1993); Austin, Fox and Hamilton (1996); PricewaterhouseCoopers (2003);
Infometrics (2004).
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Business Finance in New Zealand 2004
While a large proportion of the country’s Gross Domestic Product (GDP) comes from the primary
sector, only 3 percent of New Zealand businesses are in this sector, when looking at the business
size ranges covered by the survey. See Figure 2.02. The ‘Other Sectors’ category accounts for 43
percent of businesses and includes industries such as construction and education2.
Figure 2.02
Source: Statistics New Zealand Business Demography Data, 2004
As Figure 2.03 shows, most businesses across all sectors are small. The majority of businesses
have 1 to 5 employees, while the manufacturing sector has the highest proportion of businesses with
20 or more employees (32 percent).
Figure 2.03
Source: Statistics New Zealand Business Demography Data, 2004
2 Industries in this category include: construction, accommodation, cafes and restaurants, transport and storage,
communication services, government administration and defence, education, health and community services, cultural and
recreational services, personal and other services.
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Business Finance in New Zealand 2004
Smaller businesses are generally perceived to experience greater problems accessing finance than
larger businesses. A lack of capital is often stated as an inhibiter to business growth and a key
contributor to business failure. Evidence presented in this report will go some way to test these
assumptions. The Business Finance Survey provides particularly rich data on smaller businesses as
the sample was limited to firms with between 1 and 500 employees.
The Business Finance Survey data indicates the importance of financial intermediaries (such as
banks) for finance, particularly debt finance. Financial intermediaries may be of greater importance
in economies with firms that are smaller in terms of the size of their balance sheets.3 The survey data
also demonstrates that equity is a less preferred form of finance, particularly finance that is sourced
other than from the owner of the business. Indeed, the results showed a number of firms have a
poor understanding of equity. This is similar to international patterns of firm finance. For example, a
UK survey revealed that, although a large majority of Small and Medium Enterprises (SMEs) have a
good understanding of bank overdrafts and loans as financing sources, this figure drops well below
50 percent for equity.4
New Zealand’s private investor and venture capital markets are also considered to be less developed
than other OECD countries. However, New Zealand’s share of venture capital as a percentage of
GDP is not greatly different from countries like Australia and Denmark.5 The Business Finance Survey
results show that this type of finance is uncommon for the majority of New Zealand businesses.
This report will be used in conjunction with a range of other finance-related research conducted by
MED and other organisations to inform ongoing policy development. Further information on issues
related to access to finance can be found on the MED website:
http://www.med.govt.nz/irdev/ind_dev/access-to-finance/index.html.
3 Ministry of Economic Development and The Treasury, Economic Development Indicators 2005.
4 Lloyds TSB Small Business Research Trust, Quarterly Small Business Management Report, no 2, vol. 8, 2000.
5 Ministry of Economic Development and The Treasury, Economic Development Indicators 2005.
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