Australian SME loan applications rise, led by larger firms
Small and medium-sized enterprises across Australia have recorded a rise in loan applications, with recent data indicating a 14% increase during the July to September quarter. The growth, attributed mainly to larger SMEs, marks a second consecutive quarter of rising borrowing activity, though overall sentiment remains measured amid ongoing serviceability concerns.
Application trends
The period saw the number of applications for loans climb after a 7% rise in the previous quarter, suggesting some improvement in the industry's outlook. However, the pace of loan approvals has cooled, and the strongest application volumes have come from firms with annual turnovers between AUD $10 million and AUD $20 million. This segment registered a 76% increase in borrowing in the three months to September, with a similar pattern seen over the past year.
The value of loans drawn rose 9% for the quarter and 11% compared to the previous year, reaching the highest levels seen in three years. The data indicates that while the total number of applications stayed largely stable, those businesses choosing to borrow are seeking larger loan amounts.
Industry performance
Growth in loan applications varied considerably by sector. Administrative and support services companies saw a 110% increase, while manufacturers recorded a 61% lift. The accommodation and food services sector was up 45%, and transport, postal and warehousing firms saw a 43% rise. In contrast, financial and insurance services recorded a 27% drop, wholesale trade declined 59%, and professional, scientific and technical services fell by 63%.
Loan quality
Indicators point to some pressure on loan quality. Cancelled loan applications increased by 40%, while declines rose 26%. Serviceability issues accounted for a 42% jump in declined loans, the highest level in two years. There was also a 39% rise in cancellations related to incomplete or missing documentation. The data highlights continued challenges for smaller or less established businesses in accessing finance.
Despite these issues at the application stage, those SME borrowers currently managing loans are generally maintaining strong financial discipline. Overall, loans in arrears for more than 30 days fell by 32% to reach a multi-year low. However, the retail trade and transport, postal and warehousing sectors both recorded higher arrears than previous years.
State differences
Trends in lending activity diverged sharply across states. New South Wales experienced a 48% fall in loan applications, and Victoria contracted by 30% to reach a two-year low. Western Australia also saw borrowing activity fall, declining by 25%. Queensland, on the other hand, reported a 21% rise in applications, while South Australia's volume surged by 300% over the quarter, continuing a pattern of first-quarter strength.
Business sentiment
Banjo Loans Chief Executive Officer Guy Callaghan described the results as reflective of a sector showing careful progress.
"We're seeing a cautious kind of confidence. Larger SMEs are driving growth, but for smaller operators, the focus remains on maintaining stability. It's not a surge of optimism, rather a steady, thoughtful progress," said Guy Callaghan, Chief Executive Officer, Banjo Loans.
Serviceability remains a sticking point for many borrowers. "I've said it before - SMEs are a resilient bunch, but our data shows we're not seeing widespread confidence in the current economic climate. SMEs are navigating this climate with care, not ambition," said Callaghan.
"Without meaningful improvement to economic fundamentals, whether that's rate relief, consumer confidence or policy support, we're likely to see this subdued pattern continue," said Callaghan.
