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A rebound in asset finance demand has halted the overall decline in business credit demand, but business loan applications have declined, Equifax data has shown.
Figures from the data analytics and credit reporting company have shown that business credit demand has returned to the same level as the March 2020 pre-pandemic quarter before the pandemic border closures and lockdown measures.
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Equifax’s Quarterly Business Credit Demand Index for March 2021 – which measures the volume of credit applications for trade credit, business loans and asset finance – revealed that the recovery in business credit demand was driven by a bounceback in asset finance, which was up 8.9 per cent in the March 2021 quarter, compared with the March 2020 quarter.
This demand for asset finance was primarily driven by auto finance lenders (up 25.0 per cent), while demand for asset finance was also strong in the construction industry, where enquiries rose by 10 per cent in the March 2021 quarter, the data showed.
Asset finance applications rose across all states and territories, including Victoria despite two stages of lockdown last year (up 8.0 per cent).
Applications rose in Tasmania by 15.0 per cent, Queensland by 11.0 per cent, NSW by 10.0 per cent, Western Australia by 8.0 per cent, South Australia by 7.0 per cent, and the ACT by 2.0 per cent. However, applications dropped by 3.0 per cent in the Northern Territory.
However, business loan applications decreased by 2.0 per cent in the March 2021 quarter, but were unchanged compared with the December 2020 quarter.
Applications declined in Tasmania (down 7.0 per cent), Victoria (down 6.0 per cent), South Australia (down 3.0 per cent), and NSW (down 2.0 per cent), but rose in the Northern Territory across low volumes (19.0 per cent) and Queensland (4.0 per cent). Western Australia and the ACT saw no change in applications.
Across the states and territories, business credit applications rose by 10.0 per cent in the Northern Territory (across low volumes), 4.0 per cent in Queensland, 2.0 per cent in NSW, and 1 per cent in South Australia, but fell in Victoria (down 3.0 per cent) and the ACT (down 1.0 per cent).
The steepest decline was in trade credit applications (down 7.0 per cent) compared with the prior year, but applications were up slightly in the March 2021 quarter compared with the prior quarter (up 1.0 per cent), the figures showed.
Business insolvencies were down 36.0 per cent compared with March 2020, with Equifax noting that they are yet to match their March 2020 level. However, it said that they are rising month-on-month (up 78.0 per cent in February and 29.0 per cent in March).
Incentives boost asset finance demand
Commenting on the bounce in demand for asset finance, Equifax general manager commercial and property services Scott Mason said: “To see a rise in asset finance demand is a good sign for the economy, demonstrating that businesses are starting to once again spend on replacement and renewal of equipment. The construction industry is a big user of asset finance, and this is the second quarter in a row that applications have risen as the industry seeks to scale and grow.
“The expansion of the instant asset write-off scheme has also encouraged businesses to bring forward their spending on new assets, knowing they can claim a tax deduction upfront for the full value of the purchase.”
Mr Mason also spoke of business insolvency rates, and said that he expects insolvency volumes to return to their historical norms in the near future, particularly with the removal of the JobKeeper measure.
“Equifax analysis shows that corporate insolvencies are likely to dramatically increase over the next 12 months, with particular risk across deferral and hardship populations,” he said.
WA farmers drive demand for machinery: CBA
New data from the Commonwealth Bank of Australia (CBA) also showed that asset financing for equipment and machinery across Australia’s agricultural sector is at a seven-year high.
The data showed that March 2021 was the third-largest month for purchases of agriculture machinery since 2014, while tractor purchases are up 78.0 per cent and harvesters are up 88.0 per cent compared with the same time last year.
The CBA said that farmers in Western Australia have driven the demand, with new machinery purchases up 83.0 per cent compared with the same time last year, followed by Queensland (up 47.0 per cent) and NSW (up 30.0 per cent).
Research from National Australia Bank showed that businesses are purchasing new equipment and vehicles in record numbers as they seek to capitalise on strong business conditions.
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