By Jill Fraser for Lending Central

For the first time since the start of the Global Financial Crisis (GFC) small to medium businesses are starting to show signs of healthy improvement.

This week’s release of the NAB SME Quarterly Survey (September 2009) reveals that business conditions for SMEs (small to medium enterprises) have improved significantly, reaching positive territory for the first time since the GFC began in September 2008.

For the September quarter, large SMEs with an annual turnover between $5m - $10m recorded the strongest improvement and were the best performing at 6 index points, up from -13. Small
SMEs ($2 - $3M) recorded an improvement from -7 to 4 index points, with mid-sized SMEs ($3 - $5M) increasing from -6 to 3 index points.

The main driver of sales this quarter has been a sharp improvement in customer confidence/demand, and it represents the first positive outcome since September 2008. Positive impacts from seasonal and competitive factors have also helped.

Despite these positive survey results Joseph Healy, Group Executive, NAB Business Banking said businesses should remain cautiously optimistic about improving business conditions.

“Business confidence among SMEs for the September 2009 quarter improved significantly (by 22 index points) to a positive reading of 15 index points. While this is great news, we’re keen to see these positive signs continue well into 2010 before claiming we’re out of the woods,” said Healy.

Healy told ABC AM’s Peter Ryan that a concern in some segments of small business about access to finance and unemployment has led to a great deal of anxiety because the SME (small and medium enterprise) sector is really “the engine room of our economy”.

In response to a question from Ryan regarding credit remaining tight and unemployment yet to peak Healy conceded that this is the case “although the survey is forward looking and what small businesses are saying is that they are more confident today that the impact of higher unemployment is not going to be as severe as it was perhaps the expectation three, six, nine months ago and the strong consumer demand has lifted sales and future orders are indicating stronger levels of profitability”.

The NAB survey shows that SMEs in all states, excluding WA, are exhibiting some level of improvement. Victoria surged ahead 20 index points from -12 to 8. NSW increased sharply from -9 to 8 points (defying its “basket case economy” tag), SA improved from -2 to a positive index of 6. Queensland improved significantly from -14 to a still poor, -1.

Western Australia went against the trend and had the poorest performance, worsening from -6 to -10.

“While business conditions around the country have overall improved, WA reported a decline in business conditions,” said Healy who told Ryan that while there is strong demand and strong economic activity in the resources sector this is impacting the availability and cost of labour in other sectors of the economy and is particularly hurting small business.

He said that although Queensland improved significantly, it fell short of moving into positive territory.

“We’re waiting to see if the holiday season will have a positive effect on these states and expect to have a better idea as to how their recovery is travelling as we head into 2010.

“SMEs are the real economic drivers in Australia,” said Healy, “and this latest survey, which reveals improvements in business conditions, profit outlook and customer confidence, will be welcome news to businesses and governments who are looking for continued signs of recovery”.

Health, wholesaling and finance were the best performing SME sectors. Conversely, conditions were weak and poor in transport, retail and most parts of construction and manufacturing.