Asset finance applications tumble

Demand for asset finance and business credit has declined year-on-year as interest rate rises, inflation and supply chain pressures begin to hit home for Australian businesses.

Releasing its Equifax Quarterly Commercial Insights – June 2022 report (formerly known as the business credit demand index), credit bureau Equifax found asset finance applications dropped by 9.1% in Q2 2022 (April 1 to June 30, 2022) compared to the June 2021 quarter.

Overall business credit applications declined by -2.0% (vs June quarter 2021) and trade credit applications decreased by -2.3% (vs June quarter 2021). Equifax also found business loan applications increased by +2.0% (vs June quarter 2021).

The report measures the volume of credit applications for asset finance, trade credit and business loans.

“Business credit demand started relatively strong this quarter with growth in April and May preceding a drop in June,” said Equifax general manager commercial and property services Scott Mason (pictured above). “This could reflect decreasing business confidence in the face of rising rates and inflation and may be a forerunner to lower demand in Q3.”

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Mason said the year-on-year drop in asset finance applications for the June 2022 quarter was largely the result of a strong June quarter in 2021 as businesses were taking advantage of government stimulus such as instant asset write-offs.

“The lower demand in the June 2022 quarter reflects this,” he said. “From a seasonal perspective, Equifax generally sees softer asset finance demand in the third quarter. This is a result of asset purchases being made in the lead up to the end of the financial year and to capitalise on end-of-year offers.” 

Mason said the decline in asset finance applications was experienced in many states, with some experiencing double-digit falls.

“This is the first year since 2019 that businesses haven’t had access to subsidies like the instant asset write-off,” he said. “As a result, many businesses likely purchased assets over the past two years that don’t need to be replaced or upgraded and the fall in applications this quarter reflects this.”

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The Northern Territory was the only region to experience asset finance growth (+8.0%) and the largest decline in demand was seen in Western Australia (-18.0%) followed by South Australia (-13.0%), ACT (-12.0%), Queensland (-10.0%), NSW (-8.0%), Victoria (-6.0%) and Tasmania (-4.0%).

Mason said despite the year-on-year decline in overall business credit demand, Equifax was still seeing growth compared to the 2022 March quarter. 

“Additionally, business credit applications for the June quarter remain +13.8% higher than the same period in 2020,” he said. “This suggests t. is still steam in the economy despite external pressures.”

Business credit applications fell in all states except for a marginal increase in the ACT (+1.0%). Applications declined in Western Australia (-7.0%), South Australia (-4.0%), Tasmania (-3.0%), Northern Territory (-3.0%), NSW (-2.0%), Queensland (-2.0%) and were flat in Victoria (+0.0%).

Mason said Equifax found business loan applications were the strongest performer in the June quarter. 

“The ACT (+7.0%) and Victoria (+4.0%) saw the strongest growth,” he said. “This was followed by South Australia (+3.0%), Queensland (+2.0%) and NSW (+1.0%), however applications fell in Western Australia (-2.0%), Tasmania (-2.0%) and the Northern Territory (-5.0%).”