Loan industry flatlines amid sluggish economic activity

The SME lending atmosphere experienced minor shifts throughout 2024, with borrowing activity ending the calendar year in the same position it started.

An analysis from Banjo Loans showed new loan applications had shifted less than 1 per cent during 2024, and loan amounts across Q2 FY25 changed by a negligible 2 per cent.

Banjo Loans noted the lack of change was a picture of flatlining business conditions and confidence.

“Australian SMEs have been treading water as they continue to deal with stubborn cost pressures and cautious consumers. With these factors likely to persist for some time still, SMEs have also been keeping their debts in check,” the company said.

“As with loan applications, the amount of loans in areas has remained flat, increasing just two per cent over the year. These movements – or lack thereof – suggest a high degree of wariness about what is around the corner for this stuttering economy.”

Based on the results from the ‘Banjo Barometer’ analysis, loan applications had fallen away every quarter, easing 15 per cent against the previous quarter.

However, loan amounts were up 16 per cent as some larger SMEs with higher turnover took on bigger loans and showed a greater level of confidence to take on debt.

The barometer highlighted that small businesses with revenues above $10 million lifted their borrowing amounts to the highest levels in a year.

“Nationally, businesses in Victoria have regained an appetite for new finance, while Queensland continues to show resilience, increasing borrowing over the quarter and the year,” Banjo said.

The states found to have fallen borrowing rates in comparison to Queensland and Victoria included Western Australia, South Australia and NSW.

Banjo noted application numbers in WA had flatlined, while loan rates and applications had significantly dropped in SA and NSW.

Despite the sluggish economic activity, retailers still sought to cash in on the end-of-year consumer spending spree, according to Banjo.

The December quarter reflected an 8 per cent increase in applications for new finance in the retail trade sector, an 18 per cent increase from the previous year.

The barometer also showed SMEs in manufacturing, healthcare and social assistance borrowed more in comparison to the previous quarter while loan applications in the financial and insurance sector fell by 79 per cent at the end of the year.

Banjo said the flatlining of loan applications could be attributed to the ATO's increased debt collection activity.

“The number of declined applications eased by four per cent in the December quarter – though this number was 12 per cent higher than a year earlier,” Banjo said.

“The Australian Tax Office’s pursuit of outstanding debts has become an increasingly common reason for declined loans. In the last quarter, Banjo saw a doubling of applications being knocked back due to ATO debt.”

Serviceability and the inability to meet the minimum eligibility criteria for a loan were also noted to be contributing factors to the increased rate of declined applications.

Banjo said it was likely that Australian businesses would be hoping that 2025 would see the economy “rise from its slumber”.

“On the evidence of Banjo’s latest SME loan data, they’ll need to be patient still, with borrowing activity muddling along during the December quarter.”