Given the prevailing global and economic uncertainties, the imperative for agile and robust risk management strategies is paramount.

Commercial credit demand: a cooling trend with state-based disparities

Overall commercial credit demand saw a dip of -3.2% in Q4 2024 compared to the same period in 2023. This decrease was largely driven by a slowdown in asset finance and trade credit volumes, stemming from lower enquiries from professional services (-16%), construction (-11%) and retail sectors (-13%). 

While asset finance has previously surged off the back of Covid tax incentives, there has now been a decline in enquiries for the second and third quarters in a row, down -7.9% compared to the previous year. The majority of asset finance applications are for commercial vehicles, farm machinery and construction equipment. The Federal Chamber of Automotive Industries (FCAI) reports that vehicle sales of light commercial vehicles for November and December 2024 was down by -23% and heavy commercial vehicles down by -4.9% compared to the previous year, correlating with enquiry trends observed in the Bureau. 

Business loan enquiries followed a different trajectory, experiencing a modest increase of +3.6%, driven by increased enquiries made towards fintech (+8.2%), finance brokers (+6.1%), Tier 2 banks (+4.3%), Big 4 & Big 4 subsidiaries (+3.2%). Business loan enquiries from SA and Queensland contributed to the nationwide improvement in demand. Interestingly, during times of higher insolvency levels, we observe a slight ‘flight to quality’, with businesses gravitating towards larger, more established institutions.


Fig: Overall commercial credit demand


Just as in previous quarters, the commercial credit landscape varies significantly across states. South Australia continues to be a standout performer, with robust growth in financial services (+6.3%) and agriculture (+2.9%). Queensland is also showing positive signs, while Western Australia’s growth has somewhat normalised after several quarters of strong performance. In contrast, Victoria and New South Wales continue to struggle, reflecting broader economic challenges in these regions.


These state-based disparities highlight the importance of understanding regional nuances and tailoring credit strategies accordingly.


Insolvency update: signs of slowing growth, key sectors affected

Fig: Total market insolvencies


Insolvency levels remain a key concern, with a +48% increase in Q4 2024 compared to Q4 2023. VIC increased the most among the commercial centers (+72%) due to higher insolvency registrations from businesses in construction, manufacturing and professional services sectors.


While this is a substantial rise, there are signs that the rate of increase is starting to moderate. This suggests that the ‘zombie businesses’ sustained during the pandemic are finally washing through the system, and we may be approaching a return to more normalised insolvency levels within the next 12 months - specifically, levels between those observed in 2022 and 2023.


Preliminary data from January and February 2025 indicates a further deceleration in the rate of insolvency growth. Insolvencies are up +30% on a rolling 90-day basis (based on ASIC data to 23 Feb 2025) relative to the corresponding period last year. 


However, notable increases persist across key industry contributors to insolvencies, including: Hospitality (Accommodation and Food Services), Professional, Scientific and Technical Services, and Transport, Postal and Warehousing. While their contribution to insolvencies is smaller, the mining sector has seen insolvency numbers halve. Conversely, Health Care and Social Assistance has experienced a doubling of insolvencies, and Education and Training businesses have seen a two-and-a-half-fold increase.


In the final quarter of 2024, construction and hospitality were the industries most severely affected by insolvencies, with increases of +49% and +40% respectively compared to the same period in 2023. In Victoria, construction insolvencies during the same period increased materially by +79%, largely driven by supply chain issues and long-term fixed contracts. In South Australia, insolvencies were +100% higher than in Q4 2023, reflecting the impact of reduced disposable income. A minor resurgence of insolvencies in the hospitality sector during Q4 was likely influenced by seasonal factors, such as holiday gatherings.


Spotlight on sole traders and SMEs: increased demand for personal finance


A notable trend is the growing reliance of sole traders and SME owners on personal credit to finance their businesses. Equifax Consumer Bureau data reveals a significant uptick in personal auto loans (+14%), residential mortgages (+14%), and credit card applications (+13%) among this cohort in Q4 2024 compared to the same period in the previous year. SME credit card application levels were +35% higher than three years prior. 

Demand for auto loans increased significantly in commercial centres. In NSW, arrears grew by +21%, in WA by +29%, in Victoria by +8% and in Queensland by +6% in Q4 2024 compared to the same quarter the previous year. This suggests that businesses may be utilising personal financing options to fund vehicle acquisitions.

This trend is particularly noteworthy given the slowdown in asset finance. We’re also observing an increase in arrears on personal auto loans and credit cards, indicating potential financial stress among small business owners. Auto loan arrears among SMEs and sole traders trended upward throughout the past year, reaching +36% higher in December 2024 than the previous year. 


During the same comparison period, auto loan arrears rates were particularly elevated for business owners in construction (+75%) and those in hospitality (+43%). Similarly, credit card arrears for this cohort have doubled since December 2023.


This heightened demand for personal credit and the associated increase in arrears underscore the importance of credit professionals maintaining a comprehensive view of their customers’ financial situations, encompassing both business and personal credit activity. 


Days Beyond Terms


Days beyond terms, a metric measuring the time commercial borrowers take to fulfill their trade credit obligations, decreased by 0.4 days in Q4 2024 compared to the same period in 2023. However, this trend does not extend to the electricity, gas and water services sectors, where days beyond terms have increased by nearly five days compared to Q4 2022.


Overall customer application quality

The quality of credit applications experienced a marginal increase (+0.5%) in Q4 2024 compared to the same period the prior year, indicating sustained application quality. Short-term enhancements are also evident in the quality of asset finance (+1.2%) and trade credit (+0.5%) applications (Q4 2024 vs Q3 2024). Significantly, borrowers seeking trade credit products in Financial Services, Hospitality, Manufacturing and Professional Services presented improved credit quality compared to the fourth quarter of 2023. 

Similarly, business loan borrowers demonstrated marginally higher credit scores across all key sectors during the same period. The exception is asset finance enquiries from the hospitality sector, where scores exhibited a decline since the previous year. 


Leveraging data for proactive risk management


As we progress into 2025, the economic landscape remains fluid, with risks like global trade uncertainty poised to impact growth. Consequently, procuring the optimal credit report at origination and implementing continuous portfolio management solutions are essential for navigating these challenges and bolstering business resilience.

Selecting the appropriate credit report is critical, as reports vary in detail, ranging from basic company enquiries to comprehensive trade histories and director information. Detailed reports offer a thorough assessment of potential risks, including adverse events linked to directors and related entities, enabling informed credit decisions. Each report contains an Equifax risk score utilising proprietary Bureau attributes to predict the likelihood of adverse events within the next 12 months. The score facilitates portfolio segmentation based on risk levels, thereby optimising resource allocation.

Continuous portfolio management solutions, such as health checks and alerts, are equally indispensable for maintaining portfolio integrity. Health checks ensure data accuracy through matching, cleansing, and uplifting portfolio information, while also appending crucial data such as ACNs and ABNs, along with supplementary details like credit scores, director information, trade data and company profiles. This process effectively identifies and rectifies data discrepancies, ensuring credit decisions are based on current and accurate information. 

Equifax Alerts provide daily notifications of changes within portfolios, supporting proactive risk management. These alerts offer flexibility in setup and optimisation to align with business requirements and the size of your portfolios. 

Contact the Equifax team to find out more on 13 8332 or equifax.com.au/contact