Commercial credit demand falls amid weakening business confidence: Equifax

Recent data from Equifax has highlighted a softening in business confidence which was highlighted by a decrease in demand for commercial credit over quarter four.

The Equifax Quarterly Commercial Insights – December 2024 showed that commercial credit demand had fallen by 3.2 per cent in Q4 2024 in comparison to the same period in the previous year.

Equifax said this was driven by a decline in asset finance applications, down 7.9 per cent year-on-year, due to lower enquiries from professional services, construction and retail sectors.

Results highlighted trade credit demand had also declined by -3.4 per cent, while business loan applications grew by 3.6 per cent, driven by enquiries in Queensland and South Australia.

Scott Mason, general manager of commercial and property services at Equifax, said the research findings solidified persistent sentiments towards the market.

“The declining appetite for business credit and the considerable drop in asset finance applications in particular, suggests that many businesses are hesitant about borrowing and investing in capital,” Mason said.

“This is another indicator of low business confidence, which remains well below average levels according to recent reports.”

The research found insolvency rates at the total market level increased by 48 per cent in the December quarter of 2024, compared to the same period in 2023.

Increased insolvency rates were experienced across Australia; however, Victoria and South Australia reported a 72 per cent increase and stood out with the highest growth in the number of insolvencies registered in the quarter.

Construction insolvencies rose by 79 per cent in Victoria, while South Australia reported high insolvency rates across construction, retail, professional services and financial services.

Equifax data revealed these industries also saw increased demand for business loans and trade credit inquiries, which indicated that businesses were reaching for credit to support them in the tough economic climate.

Mason said the data showed falling demand for asset finance and trade credit was countered by a rise in consumer credit demand from sole traders and small businesses.

Auto loan demand for the SME and sole trader sector was up by 14 per cent in Q4 2024 compared to the same period in 2023, while demand for credit cards was up 13 per cent.

Mason said this was a reason for concern as the demand for auto loans and credit cards had increased, and so had the arrears which were 35 per cent higher than December 2023.

“The concurrent increase in SME personal credit applications and arrears is a potential red flag. SMEs and Sole Traders, particularly those working in industries facing high insolvencies and difficult market conditions, could be struggling to get commercial finance and instead are turning to personal lines of credit to support their businesses.”