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The Equifax Quarterly Commercial Insights (formerly Business Credit Demand Index) has revealed that business credit demand has declined year-on-year.
According to the credit information and analysis provider, external pressures such as rising interest rates, inflation and supply chain pressures are beginning to hit home for Australian businesses.
The June report found that overall business credit applications had dropped by 2 per cent when compared to the June quarter last year.
Business loan applications, however, were the only form of business credit to increase in Q2 2022, which was driven by inquiry volumes to “international lenders”, Equifax said.
Scott Mason, general manager commercial and property services at Equifax, said that while business credit demand started “relatively strong this quarter” after experiencing growth in April and May, it began to drop in June.
“This could reflect decreasing business confidence in the face of rising rates and inflation and may be a forerunner to lower demand in Q3,” Mr Mason said.
“While we did see an increase in enquiry volumes to international lenders this quarter, the dip in demand in June could herald a reversal in this trend.
“During challenging periods, many people turn to ‘tried and true’ brands that they’ve known or worked with for a long time.”
However, Mr Mason added that the overall trends were pointing to a recovery: “Despite the year-on-year decline in overall business credit demand, we are still seeing growth compared to the March quarter this year.
“Additionally, business credit applications for the June quarter remain 13.8 per cent higher than the same period in 2020, suggesting there is still steam in the economy despite external pressures.”
The strongest performer in the June quarter was business loan applications, rising 2.0 per cent when compared to Q2 2021, and up 19 per cent when compared to Q2 2020.
Asset finance applications declined by 9.0 per cent in the June 2022 quarter versus the same period in 2021, with many states experiencing double-digit falls. Demand volumes are only marginally higher currently, at +1.0 per cent when compared to Q2 2020.
“This is the first year since 2019 that businesses haven’t had access to subsidies like the instant asset write-off,” Mr Mason noted.
“As a result, many businesses likely purchased assets over the past two years that don’t need to be replaced or upgraded, and the fall in applications this quarter reflects this.”
Trade credit demand also reduced by 2.0 per cent in the second quarter on the previous year, however, demand is significantly better than the levels observed in Q2 2020, rising by 19.0 per cent.
Moreover, Q2 2022 saw insolvencies climb 20.0 per cent higher than the second quarter of 2021. Creditor wind-ups were the most common type of insolvency filed during this time.
The construction and food service and accommodation industries experienced high levels of insolvencies, with construction insolvencies showing a rise of 69.0 per cent from June 2021.
Numbers have remained lower than the 2019 average overall, however, the market is still some way off to return to pre-COVID insolvency levels.
Recent data has suggested that asset finance is becoming increasingly sought after among SMEs, a pivot driven by the COVID-19 pandemic, low interest rates and supply chain disruptions.
In March of this year, the Commonwealth Bank published data that explored emerging trends in SME lending, noting that following lockdowns and supply chain disruptions, the demand for asset finance grew by 87 per cent during the first half of the 2022 financial year when compared to the same period in 2021, and 86 per cent period-to-period over FY20.
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