Small business hibernates as sluggish economic growth bites: Banjo Loans
Australia’s weak economy is forcing small businesses to pause their growth plans and enter a period of conservation, with leading non-bank lender Banjo Loans reporting a 40 per-cent drop in year-on-year loan applications from small and medium enterprises (SMEs).
Banjo Loans has released its SME Business Barometer for the final quarter of last financial year, providing a snapshot of Banjo’s lending to a wide range of Australian SMEs.
The Barometer incudes data on loan-size history, industry, location, new applications and overall quality of applications, offering insight into the fortunes of small businesses and their industries.
Banjo Loans CEO Guy Callaghan said while the financial year’s final quarter is traditionally a strong one for SME borrowing, this was not the case for the April-June 2024 period.
“Australian SMEs appear to have gone into hibernation. We may have seen some green shoots in the data from earlier this calendar year, but these latest findings indicate that long term subsistence is the mood of the day,” Callaghan said.
“SMEs seem to be bracing for ongoing weak business conditions in the short to mid-term and they’re turning away from new finance. In addition to being down 40 per cent year-on-year, loan applications fell 20 per cent over the quarter.”
Callaghan said the data indicates that Australia’s sluggish economic growth is starting to bite, and that expectations of near-term interest rate and cost-pressure relief have dimmed.
“The underwhelming performance is particularly evident now in the largest economic states of Victoria and New South Wales,” Callaghan said.
The value of loans to SMEs in NSW has fallen a dramatic 50 per cent this past year. Meanwhile, the number of loans drawn in the state compared to the previous quarter doubled, reversing an established downward trend.
In Victoria, the number of business loans almost halved for the quarter and is down 41 per cent year-on-year. The Victorian construction boom is now slowing too.
“At an industry level, there are positive signs among pockets of the services sector, with financial and insurance providers doubling their applications over the year, but apart from that, it is not a positive reading,” Callaghan added.
Other findings from the Q4 Barometer Report include:
- Loan applications dipped for the fifth consecutive quarter, dropping 20 per cent in the three months to June.
- The value of loans was also down, falling 14 per cent in the quarter and dropping 34 per cent year-on-year.
- Many industry segments experienced broad declines on both a quarterly and annual basis, including transport, postal and warehousing (down 54 per cent in the quarter and 62 per cent year-on-year); construction (23 per cent and 32 per cent); and professional, scientific and technical services (14 per cent and 46 per cent).
- Sectors increasing their borrowing this quarter included retail SMEs (up 22 per cent), wholesale traders (42 per cent).
- The number of declined loans is up 11 per cent over the previous quarter and by 87 per cent year-on-year. Businesses’ inability to service new loans is a key reason for declined applications, along with the presence of ATO debt and adverse existing credit.
Callaghan said these Barometer findings currently paint a challenging picture of Australian small business.
“In what is typically a strong quarter for SME borrowing, loan activity has gone backwards – both in the volume of applications and the value of loans. This most recent fall completes a financial year of declining statistics,” Callaghan said.
“While some sectors have shown intermittent signs of optimism, a mood of caution appears to have mostly settled. In turn, SMEs are keeping on top of their existing debts, and seeking small new loans.
“With a low-growth economy still forecast for some time, an interest rate cut would be the circuit breaker needed to re-enliven Australia’s SME sector.”
About the Banjo SME Business Barometer Report
The SME Business Barometer Report includes Banjo’s latest quarterly key data such as SME business lending activity by loan-size history, industry, location history and new application activity, loan application quality, where available. By measuring the number, quality and volume of applications, activity by region, and repayment behaviour, it offers insights into the fortunes of the small business sector and the industries they operate within.
