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Over a quarter of businesses ‘knocked back’ by lenders

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Reporter 5 minute read

One in four businesses grappling with the economic fallout from the COVID-19 pandemic has had their application for credit rejected by lenders, according to new research.

According to the latest Sensis Business Index – which involves a survey of 1,015 businesses in the first week of August – 26 per cent of respondents said their applications for finance had been “knocked back” by credit providers, with a further 36 per cent experiencing difficulties obtaining credit.

Businesses operating in the hospitality and accommodation sector have been hit hardest, with 33 per cent reporting their credit applications had been rejected, with a further 43 per cent experiencing difficulties.

This has coincided with a reduction in risk appetite across the banking and non-banking sector, in response to a COVID-induced spike in unemployment and income loss.

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Industries most impacted by social distancing restrictions have been particularly targeted by lenders, with serviceability policies adjusted to reflect profitability expectations.

Reflecting on the results, Sensis CEO John Allan commented: “There are some sectors that were less affected, but the hospitality and accommodation sectors were virtually shut overnight, [and] that continues to be the case in Victoria,” he said.

“Of all the businesses we surveyed, nearly half (49 per cent) of those in hospitality and accommodation said COVID-19 had had a severe impact on their business.

“That was easily the highest figure of the 10 sectors we surveyed.”

Grim outlook among Melbourne businesses

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A second wave of lockdown measures in Melbourne has further dampened business confidence in Melbourne.

The Sensis Business Index found that more than half (54 per cent) of surveyed businesses in Melbourne expect profits to decrease over the next three months, compared with just 27 per cent of Sydney-based businesses.

Of the major capitals, Sydney businesses are most bullish, with 29 per cent forecasting an increase in profitability over the coming quarter, with Melbourne businesses (18 per cent) least confident.

In total, 34 per cent of surveyed businesses said they expect profits to decrease, 40 per cent expect no change, and 22 per cent said they’re anticipating an increase in profitability.  

Looking ahead, businesses in Melbourne (39 per cent) and Canberra (39 per cent) are most concerned about their viability over the next 12 months.

Overall, businesses operating in the cultural and recreational sectors were most concerned (46 per cent), followed by hospitality and accommodation (38 per cent) and retail (35 per cent).

In contrast, businesses in the construction and building sector were most confident (47 per cent), followed by transport/storage (46 per cent), and wholesale, and finance and insurance (45 per cent).

Approximately 13 per cent of Melbourne businesses surveyed said they would “close their doors” over the next 12 months, followed by Perth (12 per cent), and Brisbane and Sydney (7 per cent).

When asked about their expectations for the broader economy, 64 per cent of surveyed businesses said the economy would be worse in 12 months, with 23 per cent expecting inertia and 13 per cent expecting conditions to deteriorate.

Research group Momentum Intelligence is conducting a survey to gain insights into the impact that the COVID-19 crisis has had on businesses across the country.

The study seeks to explore the perceptions of business owners and leaders towards accessing finance and credit for their business.

The survey results will be used to create an annual ‘Business Access to Finance’ report, which will be used to inform industry, media and the wider public.

[Related: Stimulus measures artificially boosting SMEs]

Over a quarter of businesses ‘knocked back’ by lenders
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