00:00:05
Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. More small and medium- sized businesses are being knocked back for loans due to tax debt. As the ATO cracks down on SMEs that owe money, the Banjo SME Business Barometer is being released today and Fear and Greed got an early look at the report. It reveals the state of Australian small businesses. The barometer, released quarterly by non- bank lender, Banjo Loans, also reveals that arrears management is under control for all industries with one key exception: retail. It's interesting to go through this data because the post- COVID world has certainly hit that small and medium- sized business space. The number of companies appointing administrators hit a record high. In March, for example, it was about 1, 100. That's the first time since 2015 that insolvencies rose above a thousand in a single month.
Guy Callaghan is the CEO of Banjo Loans. Guy, welcome to Fear and Greed.
00:00:57
Guy Callaghan: Thanks, Sean. It's great to be here.
00:00:59
Sean Aylmer: What's the main message from your index, from the barometer?
00:01:04
Guy Callaghan: Oh, there's a few really, but the main (inaudible) I really think is that SME businesses have been doing it tough for quite a while now. So COVID came along and then we had a bit of a bounce here back in '22, and then '23 has been a really tough year for them. And they're still doing that pretty tough.
So we just watch it pretty warily on where the businesses are going. We look at our data all the time, obviously, and they release this report once a quarter. And it's just really interesting seeing which industries are doing well, which states are doing well. Your point around the ATO debt is something that the ATO have been pretty fierce on calling back debt at the moment. So the businesses come to us with looking for a loan and they have ATO debt, we're a little bit wary on it and just make sure that they're well set up with their income and more well set up with the ATO.
00:01:57
Sean Aylmer: Do small businesses kind of use the ATO as a bank, for want of a better term, or a non- bank for that matter, but the idea that if they've got tax to pay, they kind of just, well, obviously they're not paying it, but is it a mindset thing? Why aren't they paying it?
00:02:14
Guy Callaghan: Yeah, look, you've hit the nail on the head there, particularly during COVID, they really used it as a quasi- bank really where, let's just hold out on paying the ATO because the ATO was being soft on government directions too, to help businesses during that really, really tough time. That continued and some of the businesses let that get a little bit higher than it should have, which then became a scary prospect to start to get under control.
So that relaxed nature of the business owner could be now coming back to bite them because the ATO was soft, but now it's really coming back and they need to stop using the ATO as their bank.
00:02:55
Sean Aylmer: Okay. So what are the areas that you as a lender, Banjo Loans as a lender are seeing struggling more, which sectors are doing okay? You mentioned that you have data on geographies in that too. I want to get a feel for it, where construction sits, where retail sits, et cetera.
00:03:17
Guy Callaghan: Yeah, look, it's really wide and varied. The services industry and health and pharmaceutical type industry are going really, really well. So healthcare, social assistance, that side of things. Services, as we know, are going well, and they're still quite inflated with their prices at the moment because everybody's still paying them.
The ones that are really struggling are retail and hospitality particularly, mainly because the consumer's been really hurt during this time with inflation, rising interest rates so that they're starting to really tighten their belts, which is now having a pretty strong flow on effect to the retail industry. Manufacturing has also started to take a slowdown of late.
The ones that has surprised us till now is construction. And it's not to say there's not businesses out there that are hurting because we've all seen it in the news, but things like the Victorian, the government initiatives on infrastructure really helped a lot of construction businesses. So they were going okay, but we are seeing a slowdown in that as well now. So yeah, it's really mixed across different industries.
The states, what we're seeing recently is a real slowdown in Victoria and New South Wales, which is not great considering they're our two largest states economies in Australia, and they really drive the whole economy. Queensland and WA until now have been going okay. And I think the thing that's driving that mainly is that they're rural- based, they're mining- based, so they're really looking at investing in asset finance type products to get them going. So we're still seeing a lot of inflow from there, but they're not much in the business lines sets of things.
00:05:07
Sean Aylmer: Stay with me, Guy. We'll be back in a minute.
I'm speaking to Guy Callaghan, chief executive officer of Banjo Loans. What about how businesses are managing their money? Now, obviously, if they've got an ATO debt, that's something that they will have to repay, but SMEs often live and die on cash flow. Are you seeing them managing their cash flow okay given the time of the economic cycle, and particularly when they're coming to you for a loan?
00:05:41
Guy Callaghan: Yeah. Some (inaudible) . And I might take, we release, also release an annual report of the SME compass where we survey over a thousand Australian SMEs, and that came out about a month and a bit ago. So I'll use a bit of data from that as well.
But what we saw towards the end of last year, and particularly the first few months this year, was a spike in less than thirty- day arrears, which means people were really managing their cash flow that well. They were bought out a bit, they thought revenue flows were still going to flow, and then the higher interest rates started to bite them and they were bought out a bit.
Since that time, we've really, in probably the last three months, so the last quarter, we've really seen a shift in businesses being on top of their cash flow, and therefore they're low repayments on that side.
00:06:36
Sean Aylmer: A shift in a positive manner?
00:06:38
Guy Callaghan: A positive manner for us. Yeah, yeah. Positive manner for being able to manage their arrears and sorry, us manage the arrears and them manage their actual repayment timeframe and frequency. And I think it's just becoming more of a normal market setup in their own mindset. And so, the craziness, like you think of the retail guys with the retail industry with COVID, they were gangbusters, so were manufacturing, and all this revenue was flowing in just because of online sales. And now that's slowed down and everybody's starting to hurt, so they got bought out a little bit with managing their repayments. But now they seem to have that back into control as they've got used to the new real.
What we have noticed they're doing, and this came out of our SME Compass survey, is in 2023 was kind of a year or 2022, '23 was a year of increasing prices as inflation went about. Now, over the last six to eight months, they've really focused on decreasing their cost space. So what can we do to save money? What can we do to be more efficient rather than trying to increase the prices because we know the consumers aren't going to pay more now? So it's been a mental shift and a bit of a change in shift in the way they actually deal with the new realities they're living in.
00:07:55
Sean Aylmer: Are they still asking for as much money as they were previously?
00:08:00
Guy Callaghan: Yeah, they are. They are. So I'm still seeing applications up. So the Banjo Barometer, the quarterly data showed, what it showed was, even though, look, historically, the last quarter we have is usually the softest in application data that we get throughout the year, the third quarter of the financial year. However, what we saw was it was still the softest of the quarters, however, it was up about 28 to 30% from the year before.
So they're still asking for money. And the good businesses now that are knowing how to manage their money well are the ones that are coming, because I think what's happening is they understand now that there won't be any more rate rises. So there's a little bit of feeling of contentment of where the market's at and that they know where things are going. Whereas all of last year, all we got was rate rises and (inaudible) . It scared them. So now the new businesses, sorry, the strong businesses, they are planning well, can actually start to plan for the future and how they're doing things. So we're still seeing really good volumes in loan applications.
00:09:06
Sean Aylmer: Okay. So the takeaway for a small business owner listening to this, if they're going to Banjo Loans, you want a loan, make sure you've got your tax paid, or at least have a payment plan. And I presume, what else would they need? Make sure cashflow is all right so that they can repay?
00:09:24
Guy Callaghan: Yeah, look, essentially. So we want to see if there is ATO debt that is under a plan or they have engaged with the ATO. You want to see that their forecasts. We also look at a bit of their forecasts, where necessary, for those larger lines to see what they're doing in there with their client, where their revenue is coming from, and their debtors and creditors obviously under control. So we can see good cashflow management within the business, then we're happy to start looking at lending them money too.
If their finances and everything's all over the place, then you're really pushing things to try and get a loan from anyone, and the banks have got harder and harder. So the non- bank lending sector where we play is probably the area where they are going to get some joy, but we also want to see them being in a really strong cashflow management position.
00:10:18
Sean Aylmer: Guy, thank you for talking to Fear and Greed.
00:10:20
Guy Callaghan: No problem. Thanks a lot, Sean.
00:10:21
Sean Aylmer: That was Guy Callaghan, the CEO of Banjo Loans. This is the Fear and Greed Business Interview. Join us every morning for the full episode of Fear and Greed, daily business news for people who make their own decisions. I'm Sean Aylmer, enjoy your day.
Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. More small and medium- sized businesses are being knocked back for loans due to tax debt. As the ATO cracks down on SMEs that owe money, the Banjo SME Business Barometer is being released today and Fear and Greed got an early look at the report. It reveals the state of Australian small businesses. The barometer, released quarterly by non- bank lender, Banjo Loans, also reveals that arrears management is under control for all industries with one key exception: retail. It's interesting to go through this data because the post- COVID world has certainly hit that small and medium- sized business space. The number of companies appointing administrators hit a record high. In March, for example, it was about 1, 100. That's the first time since 2015 that insolvencies rose above a thousand in a single month.
Guy Callaghan is the CEO of Banjo Loans. Guy, welcome to Fear and Greed.
00:00:57
Guy Callaghan: Thanks, Sean. It's great to be here.
00:00:59
Sean Aylmer: What's the main message from your index, from the barometer?
00:01:04
Guy Callaghan: Oh, there's a few really, but the main (inaudible) I really think is that SME businesses have been doing it tough for quite a while now. So COVID came along and then we had a bit of a bounce here back in '22, and then '23 has been a really tough year for them. And they're still doing that pretty tough.
So we just watch it pretty warily on where the businesses are going. We look at our data all the time, obviously, and they release this report once a quarter. And it's just really interesting seeing which industries are doing well, which states are doing well. Your point around the ATO debt is something that the ATO have been pretty fierce on calling back debt at the moment. So the businesses come to us with looking for a loan and they have ATO debt, we're a little bit wary on it and just make sure that they're well set up with their income and more well set up with the ATO.
00:01:57
Sean Aylmer: Do small businesses kind of use the ATO as a bank, for want of a better term, or a non- bank for that matter, but the idea that if they've got tax to pay, they kind of just, well, obviously they're not paying it, but is it a mindset thing? Why aren't they paying it?
00:02:14
Guy Callaghan: Yeah, look, you've hit the nail on the head there, particularly during COVID, they really used it as a quasi- bank really where, let's just hold out on paying the ATO because the ATO was being soft on government directions too, to help businesses during that really, really tough time. That continued and some of the businesses let that get a little bit higher than it should have, which then became a scary prospect to start to get under control.
So that relaxed nature of the business owner could be now coming back to bite them because the ATO was soft, but now it's really coming back and they need to stop using the ATO as their bank.
00:02:55
Sean Aylmer: Okay. So what are the areas that you as a lender, Banjo Loans as a lender are seeing struggling more, which sectors are doing okay? You mentioned that you have data on geographies in that too. I want to get a feel for it, where construction sits, where retail sits, et cetera.
00:03:17
Guy Callaghan: Yeah, look, it's really wide and varied. The services industry and health and pharmaceutical type industry are going really, really well. So healthcare, social assistance, that side of things. Services, as we know, are going well, and they're still quite inflated with their prices at the moment because everybody's still paying them.
The ones that are really struggling are retail and hospitality particularly, mainly because the consumer's been really hurt during this time with inflation, rising interest rates so that they're starting to really tighten their belts, which is now having a pretty strong flow on effect to the retail industry. Manufacturing has also started to take a slowdown of late.
The ones that has surprised us till now is construction. And it's not to say there's not businesses out there that are hurting because we've all seen it in the news, but things like the Victorian, the government initiatives on infrastructure really helped a lot of construction businesses. So they were going okay, but we are seeing a slowdown in that as well now. So yeah, it's really mixed across different industries.
The states, what we're seeing recently is a real slowdown in Victoria and New South Wales, which is not great considering they're our two largest states economies in Australia, and they really drive the whole economy. Queensland and WA until now have been going okay. And I think the thing that's driving that mainly is that they're rural- based, they're mining- based, so they're really looking at investing in asset finance type products to get them going. So we're still seeing a lot of inflow from there, but they're not much in the business lines sets of things.
00:05:07
Sean Aylmer: Stay with me, Guy. We'll be back in a minute.
I'm speaking to Guy Callaghan, chief executive officer of Banjo Loans. What about how businesses are managing their money? Now, obviously, if they've got an ATO debt, that's something that they will have to repay, but SMEs often live and die on cash flow. Are you seeing them managing their cash flow okay given the time of the economic cycle, and particularly when they're coming to you for a loan?
00:05:41
Guy Callaghan: Yeah. Some (inaudible) . And I might take, we release, also release an annual report of the SME compass where we survey over a thousand Australian SMEs, and that came out about a month and a bit ago. So I'll use a bit of data from that as well.
But what we saw towards the end of last year, and particularly the first few months this year, was a spike in less than thirty- day arrears, which means people were really managing their cash flow that well. They were bought out a bit, they thought revenue flows were still going to flow, and then the higher interest rates started to bite them and they were bought out a bit.
Since that time, we've really, in probably the last three months, so the last quarter, we've really seen a shift in businesses being on top of their cash flow, and therefore they're low repayments on that side.
00:06:36
Sean Aylmer: A shift in a positive manner?
00:06:38
Guy Callaghan: A positive manner for us. Yeah, yeah. Positive manner for being able to manage their arrears and sorry, us manage the arrears and them manage their actual repayment timeframe and frequency. And I think it's just becoming more of a normal market setup in their own mindset. And so, the craziness, like you think of the retail guys with the retail industry with COVID, they were gangbusters, so were manufacturing, and all this revenue was flowing in just because of online sales. And now that's slowed down and everybody's starting to hurt, so they got bought out a little bit with managing their repayments. But now they seem to have that back into control as they've got used to the new real.
What we have noticed they're doing, and this came out of our SME Compass survey, is in 2023 was kind of a year or 2022, '23 was a year of increasing prices as inflation went about. Now, over the last six to eight months, they've really focused on decreasing their cost space. So what can we do to save money? What can we do to be more efficient rather than trying to increase the prices because we know the consumers aren't going to pay more now? So it's been a mental shift and a bit of a change in shift in the way they actually deal with the new realities they're living in.
00:07:55
Sean Aylmer: Are they still asking for as much money as they were previously?
00:08:00
Guy Callaghan: Yeah, they are. They are. So I'm still seeing applications up. So the Banjo Barometer, the quarterly data showed, what it showed was, even though, look, historically, the last quarter we have is usually the softest in application data that we get throughout the year, the third quarter of the financial year. However, what we saw was it was still the softest of the quarters, however, it was up about 28 to 30% from the year before.
So they're still asking for money. And the good businesses now that are knowing how to manage their money well are the ones that are coming, because I think what's happening is they understand now that there won't be any more rate rises. So there's a little bit of feeling of contentment of where the market's at and that they know where things are going. Whereas all of last year, all we got was rate rises and (inaudible) . It scared them. So now the new businesses, sorry, the strong businesses, they are planning well, can actually start to plan for the future and how they're doing things. So we're still seeing really good volumes in loan applications.
00:09:06
Sean Aylmer: Okay. So the takeaway for a small business owner listening to this, if they're going to Banjo Loans, you want a loan, make sure you've got your tax paid, or at least have a payment plan. And I presume, what else would they need? Make sure cashflow is all right so that they can repay?
00:09:24
Guy Callaghan: Yeah, look, essentially. So we want to see if there is ATO debt that is under a plan or they have engaged with the ATO. You want to see that their forecasts. We also look at a bit of their forecasts, where necessary, for those larger lines to see what they're doing in there with their client, where their revenue is coming from, and their debtors and creditors obviously under control. So we can see good cashflow management within the business, then we're happy to start looking at lending them money too.
If their finances and everything's all over the place, then you're really pushing things to try and get a loan from anyone, and the banks have got harder and harder. So the non- bank lending sector where we play is probably the area where they are going to get some joy, but we also want to see them being in a really strong cashflow management position.
00:10:18
Sean Aylmer: Guy, thank you for talking to Fear and Greed.
00:10:20
Guy Callaghan: No problem. Thanks a lot, Sean.
00:10:21
Sean Aylmer: That was Guy Callaghan, the CEO of Banjo Loans. This is the Fear and Greed Business Interview. Join us every morning for the full episode of Fear and Greed, daily business news for people who make their own decisions. I'm Sean Aylmer, enjoy your day.
