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Major industry collapses, rising costs and supply chain issues have pushed business owners into insolvency, according to Equifax.
The data analytics and credit reporting company revealed 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 economic challenges.
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The report revealed while the overall rate of insolvencies in the month of March 2022 was up 5 per cent on last year, construction insolvencies were 28 per cent higher, with 270 construction companies filing for insolvency in the first quarter of 2022 (21 per cent than March quarter 2021).
James Kelder, at Green Finance Group, and Queensland’s “Best Finance Broker” award winner said rising costs, disrupted supply chains and periodic lockdowns have led some clients to “put off” moving forward on projects.
“They’ve bought a site over the last 12 months, [they’ve] got ready to build the site, tendering the construction contract, and the contracts come back considerably higher than what they expected and they’ve gone well ‘maybe it’s not the right time to build this project’,” Mr Kelder said.
He said the market has led some of his clients to “sit and hold” and wait to see what the market does amid rising inflation and building materials costs.
Equifax general manager commercial and property services, Scott Mason, said many construction companies can’t keep up with rising costs.
“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,” Mr Mason said.
“Directors in building construction and construction services are 30 per cent more likely to have mortgage arrears than the average consumer, while proprietors in building construction are 80 per cent more likely, and those in construction services are 100 per cent 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.”
Business loan demand strong
Despite the turbulence in the construction sector, business loan applications saw an increase up 11.2 per cent compared to Q1 2021, and 13.8 per cent vs the same quarter in 2020.
Business loan applications continued to show growth across the majority of states, up 11.2 per cent overall, with Victoria and NSW seeing the highest growth (up 14 per cent and 12 per cent, respectively). The NT was the only state or territory to show a decline in business loan applications, falling 11 per cent.
In addition, overall business credit applications were up 6.1 per cent in the March 2022 quarter compared to the same period in 2021 – marking a fifth straight quarter of growth.
While government stimulus and support measures may have kept Australian businesses afloat during the pandemic, the report found the market is showing signs of “leveling out”.
Asset finance applications dropped 0.7 per cent in the March 2022 quarter compared to the same period in 2021, while current demand volumes improved by 12.6 per cent compared to the previous year.
The increase in asset finance demand was reflected in construction, retail trade, accommodation and food services, and manufacturing industries.
Demand for trade credit also increased up 2.7 per cent on the previous year, while insolvencies also climbed by 5 per cent, led by business closures.
[Related: SMEs continue to invest in machinery]
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