Business credit demand slows as interest rates, inflation and supply chain pressures are felt by businesses
Business credit demand has declined year-on-year as external pressures including interest rate rises, inflation and supply chain pressures begin to hit home for Australian businesses.
Equifax Quarterly Commercial Insights: June 2022
- Overall business credit applications declined by -2.0% (vs June quarter 2021)
- Business loan applications increased by +2.0% (vs June quarter 2021)
- Trade credit applications decreased by -2.3% (vs June quarter 2021)
- Asset finance applications dropped by -9.1% (vs June quarter 2021)
SYDNEY – 11 August 2022 – Business credit demand has declined year-on-year as external pressures including interest rate rises, inflation and supply chain pressures begin to hit home for Australian businesses.
The data has been released today by Equifax, the leading provider of credit information and analysis in Australia and New Zealand, in line with the Equifax Quarterly Commercial Insights - June 2022 (formerly Business Credit Demand Index). The Index measures the volume of credit applications for trade credit, business loans and asset finance.
According to Equifax insights, business loan applications were the only form of business credit to see an increase in Q2 2022, driven by enquiry volumes to international lenders.
Scott Mason, General Manager Commercial and Property Services, Equifax, said: “Business credit demand started relatively strong this quarter, with growth in April and May preceding a 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.
“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,” Mr Mason said
Overall business credit applications declined by -2.0% in the June 2022 quarter compared to the same period in 2021, marking the first fall in five quarters.
“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% higher than the same period in 2020, suggesting there is still steam in the economy despite external pressures,” Mr Mason said.
Business loan applications were the strongest performer in the June quarter, up +2.0% compared to the same period in 2021, and up +19% vs the same quarter 2020.
Asset finance applications declined by -9.0% in the June 2022 quarter vs the same period in 2021, with many states experiencing double-digit falls. Current demand volumes are only marginally higher (+1.0%) than the June quarter 2020.
“This is the first year since 2019 that businesses haven’t had access to subsidies like the instant asset write-off. 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,” Mr Mason said.
Trade credit demand reduced in Q2 2022, down -2.0% on the previous year. However, demand is significantly better than levels observed in Q2 2020, up +19.0%.
Insolvencies continued to climb in Q2 2022, up +20.0% in June 2022 vs the same month in 2021. Creditor wind ups were the most common type of insolvency filed in June 2022.
Construction insolvencies grew +69.0% in June 2022 vs June 2021, and the food services and accommodation industry also experienced a high level of insolvencies. Overall numbers remain lower than the 2019 average, however, suggesting the market is still some way off returning to pre-COVID insolvency levels.
Business credit demand June 2022 vs June 2021:
Business credit applications fell in all states and territories across Australia (-2.0%) with the exception of a marginal increase in the ACT (+1.0%)*. Applications declined in WA (-7.0%), SA (-4.0%), TAS (-3.0%), NT (-3.0%)*, NSW (-2.0%), QLD (-2.0%), and were flat in VIC (+0.0%).
Business loan applications saw the strongest growth in Q2, up +2.0% overall. The ACT (+7.0%)* and VIC (+4.0%) saw the strongest growth, followed by SA (+3.0%), QLD (+2.0%), and NSW (+1.0%). Applications fell in WA (-2.0%), TAS (-2.0%) and the NT (-5.0%)*.
Trade credit applications fell slightly in Q2 2022 (-2.0%). Positive demand was seen in ACT (+5.0%)*, while growth was flat in QLD (+0.0) and NSW (+0.0). The NT experienced the largest decline in trade credit demand (-6.0%)*, followed by SA (-5.0%), WA (-5.0%), VIC (-5.0%), and TAS (-3.0%).
Asset finance applications declined significantly, down -9.0% year-on-year. The NT was the only region to experience asset finance growth (+8.0%)*. The largest decline in demand was seen in WA (-18.0%), followed by SA (-13.0%), ACT (-12.0%)*, QLD (-10.0%), NSW (-8.0%), VIC (-6.0%), and TAS (-4.0%).
*Low volumes
IMAGE 1: Equifax Commercial Credit Demand Index – June 2022 Quarter
IMAGE 2: Equifax Commercial Credit Demand Index by categories of credit – June 2022 Quarter
IMAGE 3: Business Loan Applications State Overview, 2022 Q2
IMAGE 4: Asset Finance Applications State Overview, 2022 Q2
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NOTE TO EDITORS
The Equifax Quarterly Commercial Insights (formerly Business Credit Demand Index) measures the volume of credit applications that go through the Equifax Commercial Bureau by financial services credit providers in Australia. Based on this, it is a good measure of intentions to acquire credit by businesses. This differs from other market measures published by the RBA/ABS, which measure new and cumulative dollar amounts that are actually approved by financial institutions.
