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Lockdowns jeopardise growing business credit demand

Applications for loans from Australian businesses grew by 14% in Q2 compared with last year’s figures, Equifax’s latest Business Credit Demand Index revealed.

Credit demand is up by double digits this year over Q2 in 2020, according to the latest figures released by Equifax.

The consumer credit reporting agency found a 14% increase in corporate credit applications last quarter, as reported in its latest Consumer Credit Demand Index.

The quarterly report measures the volume of credit applications that go through the Consumer Credit Bureau by financial services credit providers in Australia. Because credit applications represent an intention by consumers to acquire credit and, in turn spend, the index is considered a lead indicator.

In addition to the growth in business credit applications, Equifax also reported a 15.4% increase in business loan applications, a 19.4% increase in trade credit applications, and a 9.8% increase in asset finance applications.

But with mounting lockdowns at the tail end of Q2 hampering business activity and consumer spending across the country, Equifax general manager of commercial and property services Scott Mason cautioned the growth was already slowing, particularly in NSW and Victoria.

“These new lockdown restrictions weigh on the good news story of Australia’s business credit demand recovery,” Mr Mason said.

Construction and retail trade fuelled much of the Q2 growth. Due to the nature of these industries, however, they could now be facing some of the greatest losses in lockdown. 

Demand for business loans in the retail sector was up by 11% in Q2 compared with the June 2020 and June 2019 quarters.

The construction sector saw similar growth, with business loan demand 10% higher in Q2 of 2021 than the same quarter last year and 15% higher than in 2019. 

Having faced a mandatory shutdown in Greater Sydney to try to curb the rising number of COVID cases, and now hobbled by safety restrictions, transit limitations and banned areas of operation, construction appears set to see its growth stall.

“Construction businesses are particularly reliant on the continuity of cash flow. The sector is thinly capitalised, with low margins and a fiercely competitive environment struggling to access labour and materials. Any small hiccup in the cash flow conversion cycle is likely to cause considerable pain,” Mr Mason said

Mr Mason predicted that the construction industry would take a harder hit than retail businesses, which had largely pivoted to online trade.

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