Applications for business credit continue to recover as states ease out of lockdown and SMEs take advantage of tax incentives and prepare for the Christmas rush, according to data company Equifax.
Speaking to The Adviser, Equifax’s executive general manager customer and solutions, Moses Samaha, said that while business credit applications are still below record levels, the credit reporting agency had seen an uptick in credit information requests from lenders and credit providers for small businesses that were applying for trade credit, business loans and asset finance in recent weeks.
Mr Samaha said that, as the company receives a large amount of traffic for credit inquiries from lenders and credit providers through its Commercial Bureau, this acts as a “fantastic proxy for credit demand or activity”.
The bureau has been tracking the requests, particularly for business loan applications, trade credit applications and asset finance applications to understand credit demand and business appetite (regardless of whether the loans are approved or not).
Mr Samaha said that, as Victoria eases out of lockdown and businesses prepare for the Christmas/summer rush, there has been a recovery in activity.
“We’ve definitely seen an upward trend [in applications], particularly in the last couple of weeks, without a doubt. You can appreciate as small businesses open up again, they need supplies, they need goods and they will be reaching out to get credit from their suppliers,” he said.
“We’ve also seen a large lift in credit information requests relating to asset finance. We think that’s driven by some of the government subsidies and accelerated depreciation measures issued from the government.
“So, we’re definitely seeing a bounce-back, and we’re expecting that to continue throughout the quarter, which we see a positive sign for the economy.”
However, he noted that demand in Queensland continues to be below record levels, which he says could be due to the fact that the state’s borders are still closed to Melburnians and Sydneysiders.
He told The Adviser: “Queensland’s small businesses are heavily reliant on tourism. So, while Queensland is open in its own right, with the local population moving freely, it still has challenges with the borders being closed, which would still be suppressing demand there.
“So, hopefully, very soon, when the board is open, I’d like to think that will start turning around also.”
Equifax’s executive general manager for customer and solutions noted that the bureau’s most recent Quarterly Business Credit Demand Index (for the September quarter 2020) showed that overall business credit applications were down 11.5 per cent (when compared with the September quarter 2019).
Of this, business loan applications were down 13.3 per cent, asset finance applications were down 12.0 per cent and trade credit applications were down 6.5 per cent.
Mr Samaha added that the drop in requests for credit information on SMEs were most notable in Victoria over the September quarter, which had been still in stage 4 lockdown at that time. Indeed, he said that while the drop in business demand in Victoria had been twice that of NSW (despite comparable market sizes), this has started to ease since lockdown eased.
He said: “The business rebound that many hoped for in the September quarter has not flowed equally across all states and territories. Victoria’s extended restrictions fuelled the negative growth in Australia’s overall business credit demand. So, too, Queensland’s border closures have kept business credit applications in decline.
“Interestingly, despite Western Australia’s protracted border restrictions, business credit demand in this state is showing signs of recovery. This is likely attributed to a lesser reliance on tourism than in the Sunshine State. Border closures in Queensland have placed a heavy toll on businesses reliant on a steady stream of domestic and international visitors,” he added.
While Mr Samaha told The Adviser that asset finance reduced by 12 per cent on last year’s figures, he added that he expected this to gradually turn around over the coming year in response to the October federal budget announcement of an expansion to the instant asset write-off scheme and extension of the accelerated depreciation expiry.
“Businesses with up to $5 billion in annual turnover can now write off the full cost of any eligible expenses immediately. The aim is to get businesses spending again, and we would expect to see improvements through the first half of 2021,” he said
“A lot of the demand is driven by confidence. So, as Victoria opens up, as the borders open up, businesses and people go back to work to serve consumers, they’ll be picking up in the right direction, they’ll be more confident.”
He therefore emphasised the importance of brokers helping SMEs access finance, stating: “I think there is definitely an opportunity for brokers around the accelerated depreciation, which expires 30 June 2021. As we saw a spike in the second quarter, corresponding with the original expiry date (30 June 2020), we expect there to be a spike in the second quarter. So, this remains an opportunity for brokers to help their businesses take advantage of these initiatives if they can service the loans.
“Some brokers may be offering the types of credit that help boost cash flow for small businesses, especially as we’re coming to Christmas, which is typically a challenging time for small businesses in terms of cash flow as there are public holidays and people are on leave, so ensuring they have the facilities in place to help is potentially an opportunity for commercial brokers, too.”
[Related: SME Broker Bootcamp opens for registrations]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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