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Small businesses are shying away from borrowing, while those who are looking for finance are being knocked back by lenders, according to a new survey.
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1 in 4 businesses rejected for new loans
18 August 2020
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More than one in four businesses have been rejected when applying for finance over the past three months, with that figure rising to 37 per cent in regional Australia.
The August Sensis Business Index found nearly four out of 10 business said they believed it was more difficult to secure lending since the start of COVID-19, with the majority saying it was the same, while just 12 per cent said it was easier.
The number of businesses applying for finance also fell to 13 per cent, down from 17 per cent in December 2019.
The new figures are in line with comments from Reserve Bank governor Philip Lowe, who had earlier noted the contraction of business lending, with SME demand for new loans continuing to remain low.
“At the moment, our sense from talking to the banks and even to some of the small-business associations is that not many businesses want to borrow,” Dr Lowe said.
“They don’t want to borrow because they’re so uncertain about the future they’re not investing. They are really in preservation mode.
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“It’s not surprising. Why would you go and borrow at the moment, when there’s so much uncertainty about the future?”
Worst-hit sectors
According to the Sensis Business Index, businesses in the transport and storage sector were most likely to be rejected for finance, with 60 per cent being knocked back in the last three months.
Businesses in the cultural and recreational services sector were not that much better off, with 56 per cent being unsuccessful, while 45 per cent of businesses in health and community services were being rejected.
Tarek Omar, from financial services firm Royce Stone Capital, believes securing bank funding is harder for businesses that are impacted by COVID-19 as they will no longer be able to demonstrate debt serviceability due to declined revenues.
“Unfortunately, you have a situation where at a time when businesses critically need capital, they are unable to get it through traditional sources of funding,” Mr Omar said.
“Right now, the banks are taking a very conservative approach to funding businesses and property asset prices. The market doesn’t know when things will go back to normal, especially for businesses in hospitality.
“Cash flow-based businesses such as those in hospitality don’t have any line of sight when their pre-COVID-19 revenues will return to what was previously normal.”
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