In the second quarter of 2023, businesses asked for fewer loans, and more companies faced financial difficulties and insolvency than before Covid in 2019. This data is from Equifax, a credit information provider in Australia and New Zealand.
Insolvencies and late payments are on the rise, while small and medium-sized businesses (SMBs) and Sole Traders are grappling with mortgage stress. The latest data from Equifax’s Quarterly Commercial Insights for June 2023 paints a challenging picture for the Australian business landscape.
Equifax Commercial Credit Demand Index – June 2023 Quarter
Overall, business credit demand dropped by 1.3% during this period. Requests for trade credit and business loans fell by 2.1% and 4.0%, respectively, compared to last year. But applications for asset finance rose by 7.8%.
The rate of insolvency across the market increased by 45% compared to the second quarter of 2022 and 75% compared to two years ago. In May 2023, there were 866 reported insolvencies, the highest in the past 12 months.
Scott Mason from Equifax said Australian businesses are showing signs of stress, seen not only in commercial data but also in the financial situations of business owners.
Sole traders and small-to-medium business owners in all sectors are facing more delays in mortgage payments, especially those in the construction sector. In Q2 2023, construction sector sole traders were 60% more likely to have mortgage arrears compared to average consumers.
Late-stage mortgage arrears (90+ days) are also on the rise, particularly among SMBs in construction, with a 13% increase compared to 12 months ago. This shows these business operators are prioritizing business expenses over personal payments, leading to mortgage payment delays.
Operating costs increase due to inflation, stricter borrowing conditions, and reduced consumer spending, causing stress in the business community.
The construction sector takes the longest (7.4 days) to pay trade bills in Q2 2023. Accommodation & Food Services and Healthcare industries also see an increase in delayed payments in 2023, after improvements in late 2022.
Overall business credit applications show marginal reduction
In June 2023, there was a slight decrease (-1.3%) in overall business credit applications compared to June 2022. The demand varied across different states, with Western Australia (WA), Tasmania (TAS), South Australia (SA), and Queensland (QLD) experiencing increases in applications (ranging from 5% to 7%), while Victoria (VIC), New South Wales (NSW), and the Australian Capital Territory (ACT) saw declines in applications (ranging from -2% to -13%).
Equifax Commercial Credit Demand Index by categories of credit – June 2023 Quarter
Business loan applications decreased by -4.0% in the second quarter. ACT, NSW, and VIC faced the largest declines in demand (ranging from -7% to -20%), while TAS, WA, SA, and QLD saw an increase in demand (ranging from 4% to 12%) in the first quarter.
Trade credit applications were soft in Q2 2023, with an overall decline of -2%. Most states recorded a marginal decline, with no change in demand in VIC, QLD, and WA. TAS experienced the largest decline (-7%), followed by NSW (-5%), ACT (-2%), and SA (-1%).
The only commercial product type that reported an increase year-on-year in the June quarter was asset finance. WA and VIC experienced the biggest increases in demand (15% and 11%, respectively), followed by QLD, SA, NSW, TAS, and ACT, each with smaller increases (ranging from 1% to 9%).