Small businesses gets on top of debt despite ATO tax problems: Banjo Barometer
The Australian Tax Office crackdown is having an unsettling effect on small business lending, with a leading non-bank lender revealing it has had to knock back more SMEs for loans due to tax debt.
The Banjo SME Business Barometer for the financial year’s third quarter has been released, providing a snapshot of Banjo’s lending to a wide range of Australian SMEs.
The Barometer includes 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.
The FY24 Q3 Barometer shows that while business sentiment is more positive thanks to an expectation of no more future interest rate rises, ATO tax debt is causing issues for applicants.
Banjo Loans CEO Guy Callaghan said while it was pleasing to see arrears management was under control for all industries apart from retail, tax debt was of increasing concern to lenders.
“It still isn’t the number one reason for declining a loan application, which goes to loan serviceability, however the numbers of applications declined based on ATO debt are increasing each quarter, albeit from a low base,” Callaghan said.
“More and more businesses are struggling with cash flow so it can look like an easy short-term solution to withhold tax, but it always catches up with you and now the ATO is openly stating they are coming for their money.
“Lenders are wary of giving funds to businesses with tax debt, so it is crucial for struggling small businesses to address this issue as a priority.
“Our advice to prospective clients is to enter a payment plan as soon as possible with the ATO to get a handle on the debt and then find a path forward.”
Other findings from the Q3 Barometer Report included:
- The number of loan applications declined 9 per cent compared to the previous quarter, however this level is 28 per cent higher than Q3 FY23 the Prior Corresponding Period (PCP).
- Value of loan applications dipped 8 per cent, although remains 37 per cent higher than the PCP.
- Loan application numbers were broadly consistent across most industries. Industry exceptions were accommodation and food services (applications down 17 per cent on the previous quarter), retail (down 16 per cent) and wholesale trade (down 52 per cent).
- Sectors seeing a significant improvement included logistics (transport, postal and warehousing) – which was up 12 per cent compared to the previous quarter and a massive 170 per cent on the PCP – and electricity, gas, water and waste services, up 138 per cent.
- Industry arrears were broadly consistent or improved across most sectors, with the exception of retail where they continued trending in the wrong direction.
- Serviceability was the number one reason for a loan to be declined, while insufficient documentation was the number one reason for a loan application to be cancelled.
- The nation’s two largest state economies – New South Wales and Victoria – continue to see loans drawn slow, slipping 1 and 7 per cent respectively.
- Loan drawdowns in Queensland rebounded up close to 100 per cent in what is traditionally a softer quarter for the Sunshine State.
Banjo Loans‘ Callaghan added that there were several positive takeouts from the past quarter for the SME sector.
“We’re seeing small businesses overall feeling a bit more settled after being battered by rising inflation and 13 interest rate increases since 2022,” Callaghan said.
“While a rate cut is still some months away, there shouldn’t be more increases coming our way, which leaves business in a better position to plan for the upcoming new financial year.
“Looking at our latest data, arrears management by industry, with a few exceptions, is firmly under control which again speaks to stability as businesses work to get costs under control.
“Our 2024 SME Compass found SMEs were moving towards cutting costs after previously raising prices to cope with sticky inflation.
“We’re also seeing the quality of loan applications improve, with a 20 per cent fall in the number of applications declined for the quarter despite the rise in ATO debt causing issues for some applicants.”
