Demand for commercial credit improved in Q1, with an interest rate cut helping bolster confidence across both the commercial and consumer markets. However, the latest Equifax data shows this confidence was short-lived, dipping in March due to global geopolitical factors.
According to the Equifax Quarterly Commercial Insights – March 2025, the outlook for commercial credit demand is uncertain despite anticipation of further rate cuts, as varying sector vulnerabilities to evolving tariffs create market volatility.
While overall commercial applications rose, commercial credit demand among Small and Medium Enterprises (SMEs) fell by -8.25%, putting it well below demand observed in Q1 of prior years.
Scott Mason, General Manager Commercial and Property Services, Equifax, said: “The dual pressures of long-term high interest rates and increased market unpredictability have had a significant impact on small and medium business in particular.
“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.”
SMEs struggling in construction; businesses of all sizes flail in retail and hospitality
SMEs in construction experienced a significant 18% drop in credit demand in Q1, with this reduction most pronounced in the eastern states. Additionally, more high-risk SMEs applied for credit in Q1 2025 compared to the previous year, suggesting that lower quality constructors are strapped for cash and seeking supplemental funding to keep their businesses afloat.
The hospitality sector experienced a severe downturn this quarter, with demand reducing by 16.9% and insolvencies rising by 32%. The retail industry also struggled, seeing demand reduce 7.4% and insolvencies increase 24%. Both of these industries are highly vulnerable to external factors like the ongoing squeeze on consumers’ disposable incomes and higher rents.
“Interestingly, credit demand from larger businesses in both hospitality and retail fell sharply while SMEs experienced a smaller drop. In these industries bigger businesses are more likely to be carrying larger overheads and have less agility or adaptability compared to SMEs, so will be looking for ways to reduce their spending as they weather the difficult economic conditions. On the other hand, SMEs appear to be reaching for credit to fund their ongoing business operations,” Mr Mason said.
Demand Change – Q1 2025
The Quarterly Insights measure the volume of credit applications for business loans, asset finance and trade credit.
Overall commercial credit demand increased by +1.6% in Q1 2025 compared to the same quarter the previous year. This was driven by healthy business loans demand (+3.9%) during the quarter, mirroring improved business confidence. On the other hand, trade credit demand declined -3.3% and asset finance applications declined -2.3% in Q1.
Q1 2025 saw a 28% jump in total insolvencies vs the same period in 2024, with Victoria and NSW being the primary drivers.