Retail businesses are feeling the most pain from the economic slowdown, with loan applications crashing by almost 50% and arrears increasing during the December quarter, according to the Banjo SME Business Barometer Report.

The Barometer provides a quarterly snapshot of Banjo’s lending to Australian SMEs, including data on loan size history, industry, location, new applications and overall quality of those applications.  It builds on Banjo’s SME Compass report, which comes out annually and surveys SME sentiment on the challenges and opportunities available in the coming year.

Loan applications submitted to Banjo rose by 13% compared to Q2 FY23, although remain well down on the highs of Q4 FY23 due to seasonal factors and significant economic constraints including high interest rates.

Unsurprisingly, applications from the retail sector fell by a 44% in Q2 FY23, with other sectors such as rental hire & real estate and accommodation & food services experiencing steep declines, down 50% and 38% respectively.

More than 23% of loan applications came from SMEs with $5 million to $10 million in revenue for an average loan of around $400,000 in this cohort. Victoria was the standout state driven by strong growth in construction loan applications due to the continuation of large infrastructure projects in the state.

Banjo Loans CEO, Guy Callaghan said small retail businesses had been hard hit by a combination of cautious consumers, high interest rates and inflation eroding household budgets.

“The fall in loan applications from retail SMEs is largely down to these businesses not having the confidence to go for funding to grow their businesses in the current climate. In normal times we’d be seeing far more loan applications for things like upgrading store fronts, marketing spend or hiring more staff,” he said.

“These businesses are battling a myriad of issues and challenges which won’t be going away in the immediate term.”

Callaghan said they were monitoring arrears in loans from retail businesses as a result of the tough economic climate. However, it was not all doom and gloom with signs of improvement on the horizon.

“Inflation figures should give consumers more confidence to spend and bolster the position of retail small businesses looking to grow and expand. The RBA’s decision not to increase the cash rate should provide further relief.”