Growing business credit divide revealed

According to credit reporting bureau Equifax’s latest Business Market Pulse, demand for business loans remained resilient in May, with lending to large businesses rising 15 per cent year on year and SME loan demand increasing 9.1 per cent.

Equifax’s data, however, points to a growing divide between large and small businesses in insolvencies and other metrics.

While company insolvencies fell 10 per cent over the year to April, insolvencies among unincorporated small businesses rose 9.3 per cent over the same period.

Asset finance demand declined 2.1 per cent among large businesses year on year (YoY) and 4.1 per cent among SMEs nationally, with falls recorded across most states.

Credit reporting agency CreditorWatch has also recorded acute stress on certain SME industries. Data from last month has shown that payment arrears climbed to their highest level since January 2020.

CreditorWatch’s report found Australian businesses were being hit by a “three-way squeeze”, with inflation and energy costs increasing operating expenses, higher interest rates tightening debt-servicing capacity, and softer demand limiting the ability to pass on costs.

Indeed, analysis from National Australia Bank (NAB) has also found that SME input costs are increasingly outpacing price growth at an “eye-watering” level, putting pressure on margins and adding to concerns about inflation and further interest rate hikes.

“There is a divide in how different-sized businesses are managing this cash squeeze,” Equifax general manager of commercial, Brad Walters, said.

“Australia’s large companies appear to have more financial breathing room to handle the pressure. They are continuing to expand their funding lines, with business loans up +15 per cent YoY. This extra capital support seems to be keeping them stable, with larger corporate insolvencies under ASIC actually falling by -10 per cent YoY.

“In contrast, small businesses and sole traders appear to be feeling more pressure. While their demand for new business loans grew by a softer, yet resilient 9.1 per cent YoY, unincorporated small business insolvencies under AFSA rose by 9.3 per cent YoY – moving in the exact opposite direction of big corporate Australia.

“Given that smaller enterprises are the backbone of our communities and vital to employment, watching this gap widen shows the real pressure building at the grassroots level of the economy.”

Cash flow pressure builds

Elsewhere, the data suggested businesses are coming under increasing cash flow pressure.

New ATO tax defaults surged 47.9 per cent year on year in May, while severe delinquencies of more than 91 days rose to 11.3 per cent of overall market debt in April, up from around 8 per cent in March.

At the same time, the proportion of debt classified as on time fell from around 80 per cent to 78 per cent, while debt between 31 and 60 days overdue increased from 7.4 per cent to around 8 per cent.

Walters said the figures pointed to a trend of businesses falling behind on payments while preserving cash.

“Our latest data also suggests that cash flow pressure is rising across the entire business community,” Walters said.

“We are tracking a trend where companies are falling behind on what they owe, with severe 91-plus day delinquencies jumping to 11.3 per cent of overall market debt in April, up from around 8 per cent in March.

“At the same time, we have observed a 47.9 per cent surge in new ATO tax defaults. This indicates a pattern where businesses may be delaying their tax obligations to keep cash on hand.”

Cash flow has become a focal point for many businesses, sharpened by the upcoming Payday Super reforms.

According to further analysis from NAB, 44 per cent of business owners already cite cash flow as their top concern.

Divergence across the states

While business credit demand remained positive nationally, growth varied considerably between states.

Among large businesses, South Australia recorded the strongest growth in business loan demand, rising 15 per cent year on year, followed by NSW at 11.7 per cent. Victoria recorded the softest growth at 1.7 per cent.

The picture was similarly mixed among SMEs. South Australia led the way with business loan demand up 9 per cent, ahead of NSW (+5.4 per cent) and Queensland (+4.1 per cent), while Victoria was the only state to record a decline, falling 0.7 per cent over the year.

Asset finance demand was generally weaker across the country. Queensland SMEs recorded one of the sharpest declines, down 9.3 per cent year on year, while large business asset finance demand fell most heavily in Western Australia, down 8.1 per cent.

[Related: Finance access emerges as top hurdle for SME growth]

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