Business credit applications up, despite ongoing turbulence in the construction sector
Rising rates of insolvency in the construction industry are putting significant pressure on sole traders and small business owners in the sector, according to new data from Equifax, the global data, analytics and technology company.
Equifax Quarterly Commercial Insights: Mar 2022
- Overall business credit applications grew by +6.1% (vs Mar quarter 2021)
- Business loan applications increased by +11.2% (vs Mar quarter 2021)
- Trade credit applications improved by +2.7% (vs Mar quarter 2021)
- Asset finance applications decreased marginally by -0.7% (vs Mar quarter 2021)
SYDNEY – 3 May 2022 – Rising rates of insolvency in the construction industry are putting significant pressure on sole traders and small business owners in the sector, according to new data from Equifax, the global data, analytics and technology company.
While the overall rate of insolvencies in the month of March 2022 were +5% up on last year, construction insolvencies were +28% higher. The first quarter has seen 270 construction companies filing for insolvency, being +21% higher (vs Mar quarter 2021).
Mortgage arrear rates for sole traders in the construction industry are twice that of the average consumer, indicating that these business owners are dipping into their personal finances to keep their operations afloat in the face of major industry collapses, rising costs and ongoing supply chain issues.
Scott Mason, General Manager Commercial and Property Services, Equifax, said: “The construction industry has been hard hit over the past two years, despite support from the Government. Rising costs, disrupted supply chains and periodic lockdowns have created a ‘profitless boom’, with many construction companies committed to projects that are no longer financially viable thanks to major price increases for building materials.
“While big name collapses like Probuild and Condev have recently been in the news, what doesn’t often make headlines are the impacts of these events on the small businesses that make up the bulk of construction companies in Australia. According to Equifax data, Directors in building construction and construction services are 30% more likely to have mortgage arrears than the average consumer, while Proprietors in building construction are 80% more likely, and those in construction services are 100% more likely to have mortgage arrears.
“This illustrates how far-reaching the impacts of commercial insolvency can be. The flow-on effects to the whole ecosystem of suppliers and the people behind these businesses often go unseen,” Mr Mason said.
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 - Mar 2022 (formerly Business Credit Demand Index). The Index measures the volume of credit applications for trade credit, business loans and asset finance.
Despite the turbulence in the construction sector, overall business credit applications were up +6.1% in the March 2022 quarter compared to the same period in 2021, marking a fifth straight quarter of growth. Strong business loan applications supported this increase, up +11.2% compared to Q1 2021, and +13.8% vs the same quarter in 2020.
Although overall business credit demand and business loan applications increased, both are growing at a slower pace than in previous quarters. This suggests the market is levelling out after a recent period of recovery.
Asset finance applications shrank marginally, down -0.7% in the March 2022 quarter compared to the same period in 2021. However, current demand volumes have improved by +12.6% compared to Q1 2020.
The increase in asset finance demand compared to 2020 was seen across all states and territories, and was also reflected in construction, retail trade, accommodation and food services, and manufacturing industries.
Trade credit demand grew slightly in Q1 2022, up +2.7% on the previous year. Demand is marginally below levels observed in Q1 2020, down -0.8%.
Insolvencies continued to climb in Q1 2022, up +5.0% vs Q1 2021. Wind ups were the most common type of insolvency filed in March 2022. NSW and QLD insolvencies saw a significant uptick, increasing 41% in March 2022 from February 2022 levels.
Business credit demand March 2022 vs March 2021:
Business credit applications rose across Australia (+6.1%) with the exception of the NT (-3.0%)*. Applications were up in VIC (+8.0%), TAS (+7%), QLD (+6.0%), NSW (+6.0%), ACT (+4.0%), SA (+3.0%) and WA (+3.0%).
Business loan applications continued to show growth across the majority of states, up +11.2% overall. Victoria (+14%) and NSW (+12.0%) saw the strongest growth, followed by Queensland (+11.0%), SA (+10.0%), TAS (+8.0%), WA (+7.0%) and ACT (+4.0%). The NT was the only state or territory to show a decline in business loan applications, down -11.0%*.
Trade credit applications grew slightly (+3.3%). Strong positive demand was seen in ACT (+14.0%) and TAS (+9.0%), while the NT (6.0%)*, WA (+6.0%), NSW (+3.0%), VIC (+3.0%), and QLD (+2.0%) also experienced growth. SA registered a decline in trade credit demand this quarter (-7.0%).
Asset finance applications declined slightly overall, down -0.7% year-on-year. Applications were up in the NT (+11.0%)*, TAS (+3.0%) and Victoria (+1.0%). QLD was flat (+0.0%), while WA (-4.0%), NSW (-2.0%), SA (-2.0%) and ACT (-2.0%) all saw declines.
*Low volumes
IMAGE 1: Equifax Commercial Credit Demand Index – March 2022 Quarter
IMAGE 2: Equifax Commercial Credit Demand Index by categories of credit – March 2022 Quarter
IMAGE 3: Business Loan Applications State Overview, 2022 Q1
IMAGE 4: Asset Finance Applications State Overview, 2022 Q1
ABOUT EQUIFAX
At Equifax (NYSE: EFX), we believe knowledge drives progress. As a global data, analytics, and technology company, we play an essential role in the global economy by helping financial institutions, companies, employers, and government agencies make critical decisions with greater confidence. Our unique blend of differentiated data, analytics, and cloud technology drives insights to power decisions to move people forward. Headquartered in Atlanta and supported by more than 13,000 employees worldwide, Equifax operates or has investments in 24 countries in North America, Central and South America, Europe, and the Asia Pacific region. For more information, visit www.equifax.com.au or follow the company’s news on LinkedIn.
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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.
