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Fewer businesses defer loan repayments: ABS

by Malavika Santhebennur6 minute read
Fewer businesses defer loan repayments: ABS

The number of businesses reporting that they were deferring loan repayments dropped substantially in October, with medium businesses most likely to have deferred loans, new ABS data shows.

In October, 7 per cent of all businesses reported that they were deferring loan repayments, a drop from 16 per cent of businesses in May, according to the Australian Bureau of Statistics’ (ABS) Business Indicators, Business Impacts of COVID-19.

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The data, which was compiled by the ABS to measure the impacts of COVID-19 on the Australian economy and society, showed that medium businesses were almost twice as likely to report that they were deferring loan repayments at 13 per cent, compared with 7 per cent of small businesses, and 7 per cent of large businesses.

The most common reasons businesses reported for deferring loan repayments included reduced cash flow, not enough money, reduced turnover, and needing to defer repayments in order to keep trading and pay bills.

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The industries in which businesses were most likely to report that they were deferring loan repayments included accommodation and food services (31 per cent), wholesale trade (21 per cent) and manufacturing (16 per cent).

One in five (21 per cent) businesses reported that they sought additional funds over the past six months, with 21 per cent of small businesses, 27 per cent of medium businesses, and 24 per cent of large businesses doing so.

Businesses in accommodation and food services (sectors whose businesses bore the brunt of the lockdowns to curtail the spread of the coronavirus pandemic) were the most likely to have sought additional funds (35 per cent), while businesses in arts and recreation services were the least likely (7 per cent).

Almost three-quarters, or 72 per cent, of the businesses that sought additional funds reported that they did so to cover operating expenses, although this figure varied depending on the size of businesses.

According to the ABS, 73 per cent of small businesses, 66 per cent of medium businesses and 60 per cent of large businesses sought funds to cover their operating expenses.

Meanwhile, 48 per cent of medium businesses cited capital expenditure as their reason for seeking additional funding, while 32 per cent of small businesses and 34 per cent of large businesses did so for this reason.

Overall, month-on-month, the proportion of businesses reporting a decrease in revenue fell to 31 per cent in October, compared with 47 per cent in July.  

When businesses were asked to estimate how long they could sustain their operations through currently available cash on hand, 21 per cent said one to less than three months, while 13 per cent said three to less than six months, and 38 per cent said six months or more.

Speaking of the figures, ABS head of industry statistics John Shepherd noted: “More than four in five (83 per cent) businesses that did not seek additional funds said it was because the funds they had were sufficient and around half (49 per cent) did not want to increase debt.

“For the 21 per cent of businesses that sought additional funds, the most common purpose was to cover operating costs (72 per cent).”

CreditorWatch, chief economist, Harley Dale, suggested that the figures reflect the spectrum of government measures.

He said: It's positive to see [these] ABS figures showing that business revenues are stabilising, because cashflow is ultimately what is going to decide whether companies survive or fold over the coming few months.

However, the fact that such a large majority of firms aren't seeking new funds is indicative of the one-size-fits all approach that the government stimulus measures have taken. The likelihood is that taxpayer money is being put into companies that will fold without it and these firms are taking on business that could otherwise be absorbed by healthier companies."”

[Related: SME COVID-19 loans top $40bn: ABA]

Fewer businesses defer loan repayments: ABS
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Malavika Santhebennur

Malavika Santhebennur

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Malavika Santhebennur is a content specialist at Momentum Media, focusing on mortgages and finance writing.

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