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Loan activity from small businesses “has gone backwards”, with the number of loan applications falling and approvals plummeting, according to the lender.
Loan applications and approvals for small-business loans at non-bank lender Banjo fell markedly in the last quarter of the financial year 2024.
Applications dropped 20 per cent in the three months to June, according to the lender’s Banjo Barometer Q4 FY24 report, which also noted a 40 per cent drop compared to the same period last year.
The stats marked the fifth consecutive quarter that the number of loan applications has dropped at the lender.
The value of loans also declined 14 per cent in Q4, a 34 per cent decrease compared to Q4 last year (however, the dollar value amount has not been released).
The drop in applications was noticed across a range of industry segments, particularly from small- to medium-sized enterprises (SMEs) in the transport, postal, and warehousing sector, down by 54 per cent over the quarter and 62 per cent compared to last year.
The construction sector followed behind, with SME loan applications down 23 per cent over the quarter at Banjo and 32 per cent year on year.
The accommodations and food service sector noted a reduction in loan applications of 17 per cent over the quarter and 55 per cent year on year, with administrative and support services down 15 per cent quarterly and 72 per cent yearly.
Loan declinations on the rise
Banjo revealed that the number of loan applications it had declined had increased by 11 per cent over the quarter and is up 87 per cent compared to the same period last year.
The lender attributed the increase in rejected loan applications to poor loan quality.
The SME lender said that an SME’s “inability to service new loans” had been a key reason for the uptick in declined applications, as well as the persistence of SME debt with the Australian Taxation Office (ATO) and “adverse existing credit”.
Despite a reduction in new lending with Banjo, the lender noted that loan arrears improved during Q4, with the majority of industries managing their 30-plus day arrears. This is with the exception of the retail sector, which the lender said was still struggling.
According to Banjo, repayment levels have “worsened” for the accommodation and food services sector and the transport, postal, and warehousing sector; however, they appear to be “very manageable” for the time being.
How have the states performed?
Banjo’s report also looked into the performance of SME lending across the states, with Western Australia coming out on top as the state had an increase in loan applications of 200 per cent over the quarter. The value of loans also increased in Western Australia by 22 per cent over Q4.
The value of loans in South Australia also increased this quarter by 60 per cent after a series of quarterly declines, Banjo revealed. However, the number of loan applications has reduced in the state.
The value of SME loans has fallen in NSW, down 50 per cent over the past year; however, the number of applications doubled over the quarter, which has “[reversed] an established downward trend”, according to Banjo.
Victorian SME loan applications “almost halved” in the quarter, with the value of loans also sitting 41 per cent lower than they were last year. Banjo said that borrowing from the construction industry slowed “dramatically” in Victoria.
Speaking on the outlook for SME lending, Banjo said: “While some sectors have shown intermittent signs of optimism, a mood of caution appears to have otherwise settled.
“With a low-growth economy forecast for some time still, a cut to interest rates still appears to be the circuit breaker required to re-enliven Australia’s SME sector.”
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