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Construction and retail trade have fuelled business loan growth in the June quarter but the recovery of these industries is now in question following recent lockdowns, according to Equifax.
Figures for the second quarter of 2021 (Q2 2021) in the latest Equifax Quarterly Business Credit Demand Index (June 2021) have shown double-digit growth in business credit demand with solid gains across all categories of credit.
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However, sustaining this pace of recovery into the third quarter is now under question as the ongoing COVID-19 lockdowns have shown signs of dampening credit demand in NSW and Victoria.
Figures from Equifax – the global data, analytics, and technology company and credit information provider in Australia and New Zealand – have revealed that overall business credit applications grew by 14.4 per cent in the June 2021 quarter compared to the June 2020 quarter (when restrictions were in place).
Business credit demand also rebounded in the June 2021 quarter to surpass pre-COVID levels, rising by 8.2 per cent compared to June 2019.
Business credit applications surged in every state in the June 2021 quarter compared to last year, including NSW and Tasmania (up 20.0 per cent), Victoria (up 18.0 per cent), Western Australia (up 16.0 per cent), South Australia and the ACT (up 13.0 per cent), and Queensland (up 5.0 per cent), but was down in the Northern Territory (down 44.0 per cent).
Business loan applications increased by 15.4 per cent in the June 2021 quarter compared to last year, and 11.3 per cent higher than June 2021 pre-COVID.
Construction and retail trade fuelled much of this growth, with demand for business loans in the construction sector 10.0 per cent higher than the same quarter last year and 15.0 per cent higher than in 2019.
Business loan applications grew by 11.0 per cent in the June 2021 quarter in retail trade compared to the June 2020 and 2019 quarters despite “unprecedented” closure of retail outlets during the first wave of the pandemic.
Victoria led the recovery in business loan applications (up 24.0 per cent), followed by NSW (up 23.0 per cent), Western Australia and the ACT (up 17.0 per cent), South Australia (up 16.0 per cent), Tasmania (up 15.0 per cent), and Queensland (up 2.0 per cent) but plunged in the NT (down 60.0 per cent).
Lockdowns jeopardising sector recovery
However, Equifax general manager commercial and property services Scott Mason warned that the recovery of both industries is now under question following snap COVID-19 lockdowns across three states.
The impact on commercial demand in NSW is expected to be significant from the first-ever shutdown of construction sites due to the latest COVID-19 outbreak, with follow-on effects to supply chains, he added.
“These new lockdown restrictions weigh on the good news story of Australia’s business credit demand recovery,” Mr Mason said.
“Construction businesses are particularly reliant on the continuity of cash flow. The sector is thinly capitalised, with low margins and a fiercely competitive environment struggling to access labour and materials. Any small hiccup in the cashflow conversion cycle is likely to cause considerable pain.
“The impact to the construction industry may well cut deeper than it has for retail trade, which has been able to pivot from brick-and-mortar operations to an online experience.”
Mr Mason added that both sectors would have to face the challenge of navigating a path forward without the breadth of stimulus and support measures and protections that were previously provided.
Auto finance propels asset finance
Asset finance applications increased by 9.8 per cent compared to the same quarter last year when businesses were incentivised to source relevant depreciating assets eligible for immediate write-off.
According to Equifax, the recovery in asset finance was driven by auto finance and the instant asset write-off scheme.
NSW led the way among the eastern states with applications growing 14.0 per cent year-on-year, while Tasmania posted a 22.0 per cent gain. Applications also grew in Western Australia (up 10.0 per cent), Victoria (up 8.0 per cent), South Australia (up 6.0 per cent), Queensland (up 5.0 per cent), the ACT (up 3.0 per cent), and the NT (up 1.0 per cent off low volumes).
Trade credit demand jumped by 19.4 per cent in the June 2021 quarter, posting strong recovery after a significant fall during the pandemic. Applications are on par with pre-COVID levels, declining by 0.9 per cent when compared with June 2019.
“Trade creditors, by the nature of their business, feel the impact strongly of lockdowns and falling business confidence,” Mr Mason said.
“We’ve seen trade credit applications recover in this quarter, but at a slower rate to business loans and asset finance.”
Insolvency volumes have continued to climb, and was up by 23.0 per cent in the June 2021 quarter compared to last year.
Insolvencies were 110.0 per cent higher than the previous year in the accommodation and food services industries, and 13 per cent lower than pre-COVID-19.
[Related: Demand for asset finance spikes: Equifax]
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