SMEs struggle as the Australian economy drags on: New data from Banjo Loans reveals continued borrowing caution

As Australia’s small-to-medium enterprise businesses (SMEs) continue to navigate the complexities of the slowing Australian economy, new data paints a bleak picture of the pain and uncertainty felt throughout the sector in the final months of 2024.

According to the latest SME Business Barometer from Banjo Loans, loan applications and deal volumes flatlined, reflecting the ongoing pressure being felt by SME business owners.

While the findings reveal some variation across states, the overall picture is one of caution and hesitation. Western Australian SME businesses suffered the most, taking a step backward and a down quarter in funding.

While the outlook for many states was fairly subdued, the data did show that two states bucked the flatlining trend, with Victoria showing promising signs of growth this quarter while Queensland continued its strong performance compared to the other states.

Banjo Loans CEO Guy Callaghan highlighted the ongoing uncertainty SMEs continue facing, pointing to weak loan application numbers and a shift away from earlier hopes for recovery.

“SMEs are feeling the weight of the ongoing economic challenges, with most businesses still wary of borrowing or investing,” said Callaghan.

“While some regions like Victoria are seeing a slight uptick, the overall mood across the country remains one of caution. The lack of a typical end-of-year rush further indicates the ongoing strain businesses are under.”

In terms of loan quality, the Barometer confirmed that SMEs are still managing to meet their loan payment obligations, following approvals. However, it also highlighted that SMEs with revenue under $2 million (the S of SME’s) remain the most cautious, with many hesitant to take on any additional debt in the current market.

“Serviceability and meeting eligibility criteria continue to be the highest reasons for loan rejections, particularly with the rise in businesses carrying unsustainable ATO debt,” said Callaghan.

“The ATO’s aggressive approach to recoup outstanding payments is likely contributing to this trend.”

In terms of arrears, most industries have been able to manage their arrears, apart from transport and warehousing, where the subdued economy seems to be taking its toll.

Key findings from the Banjo Barometer include:

• A consistent volume of loan applications, with a steady flow of submissions from businesses.
• Smaller businesses under $2m in revenue remain hesitant to take on more debt due to concerns over economic uncertainty.
• The ATO’s increased focus on recouping outstanding debts is having a notable impact on loan approvals.
• Sectors that increased their borrowing this quarter include Mining (up 167%), Manufacturing (up 11%), Information Media and Telecommunications (up 22%) and Healthcare (up 14%).
• At the other end of the spectrum, a drop in borrowing capability was seen in Accommodation and Food Service (down 34%), Construction (down 29%) and Financial and Insurance services (down 79%) when compared to the previous quarter.

“Despite the difficult market conditions, this report shows that there are areas of opportunity for SMEs,” Mr Callaghan said.

“To continue to support growth, a more proactive approach to financial support, potentially through targeted policy adjustments, will be key in encouraging more businesses to borrow and invest.”

While Australia’s SME sector remains caught in a prolonged downturn, the data suggests a need for targeted policy measures to help businesses regain stability and drive growth in the face of ongoing economic uncertainty.