Small Business faces tough year after lending healthcheck reveals cautious approach

Several sectors have pulled back from new lending amid a cautiousness about the economy.

Several sectors have pulled back from new lending amid a cautiousness about the economy. Picture: NCA Newswire

Australia’s small businesses are cautious, with non-bank lender Banjo Loan preparing for tougher times over the next 10 months as higher costs pinch spending.

In its latest business barometer, Banjo said overall lending applications were steady, having come off their peaks in mid 2023, but several key sectors were showing a sharp pullback in funding demands.

Banjo’s data, covering the second quarter of the 2024 financial year, showed applications for finance from the construction sector plateaued in the three months to the end of December, after doubling in mid 2023.

But the barometer report noted lenders were approaching applications from the construction sector with “caution”, noting the sector was “experiencing trouble managing their loans”.

Lending to retail, accommodation and food services, rental hire and real estate operations were all precipitously down in the period.

Rental and real estate led the way, down 50 per cent, followed by retail down 44 per cent.

But Banjo boss Guy Callaghan said the overall credit quality of businesses seeking loans had lifted in the second quarter of 2024.

Mr Callaghan said small businesses were clearly cautious, with loan sizes barely shifting from their $400,000 average.

“The financial year, things were going pretty well and then the last three months of the year things started tapering off,” he said.

“Businesses are a lot more wary and not going so rapidly for funding.”

Banjo Loans CEO Guy Callaghan. Picture: Supplied

Banjo reported its main reason for declining loans in the last quarter was serviceability.

Mr Callaghan said the failure of so many businesses in 2023 had given the lender pause over who was handed cash.

ASIC’s 2023 data showed 5020 companies failed in the six months to December 2023, coming after 7942 failed in the 2023 financial year.

“The market is hurting, we don’t want to be caught up in it. We don’t want to be a canary in the coal mine,” Mr Callaghan said.

Mr Callaghan said he expected “bumpy times” to continue for small businesses over the coming months.

“It’s not to say we’re closing our doors, we’re still growing a lot and lending,” he said.

But he said businesses would face consumers less willing to spend with so many coming off fixed rate home loans into a higher interest rate environment.

“There’s more pain coming,” he said.

Banjo’s barometer notes if the Reserve Bank cuts rates in the next quarter or two it may see the retail sector “come up for air”.

“The construction sector in Victoria is powering ahead, with strong demand from civil engineering and residential building companies,” the report noted.

“Although there’s a slight dip in applications from NSW overall, Banjo has seen funding for the manufacturing sector in our most populous state outstripping the rest of the nation by a country mile.”