The first quarter of 2025 (Q1 2025) saw overall commercial credit applications edge upward, although the broader business outlook remained mixed.
Recent insights from Equifax and CreditorWatch highlighted diverging trends across sectors and regions, reflecting how interest rate movements and global economic developments are shaping credit activity.
Equifax's March 2025 Commercial Insights report indicated a 1.6% year-on-year rise in total commercial credit applications.
Business loans led the increase with a 3.9% rise, while trade credit and asset finance applications dipped by 3.3% and 2.3%, respectively.
Small and medium-sized enterprises (SMEs), however, appeared to be scaling back borrowing. SME credit demand fell by 8.25% compared to the same period last year, indicating a potential shift toward internal cost management.
Scott Mason, general manager of commercial and property services at Equifax, said many smaller businesses are delaying growth initiatives in the current climate.
“Without credit, expansion is difficult for SMEs. The reduced demand suggests that SMEs are battening down the hatches and focusing on efficiency gains through cost cutting rather than productivity gains that rely on investments, like technology, training, or hiring,” he said.
The construction sector reported an 18% fall in SME credit demand, particularly in the eastern states. Equifax noted a rise in applications from higher-risk operators, suggesting increased reliance on external funding to cover financial shortfalls.
Retail and hospitality also reported significant setbacks. Hospitality saw a 16.9% drop in applications and a 32% rise in insolvencies, while retail recorded a 7.4% decline in demand and a 24% increase in insolvencies.
CreditorWatch’s Business Risk Index (BRI) for April showed insolvency rates stabilising, although still at historically high levels. Construction and food services sectors continued to account for a large share of total business failures.
Over the past year, nearly 10% of businesses in the hospitality sector ceased operations, driven by reduced consumer spending and cost pressures.
While some indicators such as insolvencies and trade payment defaults appeared to have steadied, payment delays remained widespread. Businesses reported average delays of nearly 10 days beyond payment terms, reflecting persistent liquidity challenges.
Chief economist Ivan Colhoun of CreditorWatch said easing inflation and interest rate cuts may provide relief later in the year, but external risks remain.
“Businesses exposed to discretionary spending experience the worst of both worlds, with their costs pressured and their customers’ demand weakened. Hopefully, the recent interest rate cuts by the RBA can build on the beneficial effects of last year’s income tax cuts and cost-of living support,” he said.
Western Sydney continued to face elevated business risks, with several suburbs posting the highest projected closure rates nationally.
In contrast, inner-city Adelaide and parts of regional Victoria and North Queensland showed greater resilience.
Norwood-Payneham-St Peters in Adelaide recorded the lowest risk of business closures, while Adelaide’s CBD led all capital cities with the most favourable projected failure rate at 5.2%.
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