Australia’s central bank expects the number of small business failures will “rise substantially” as income and loan pressure builds.
With income support measures and more than $200 billion in loan deferrals set to expire, the Reserve Bank of Australia (RBA) says between 10% and 15% of businesses in hard-hit sectors won’t make it as they run out of cash.
“These businesses are in a tenuous position and are particularly vulnerable to a further deterioration in trading conditions or the removal of support measures,” the RBA wrote in its Financial Stability Review published on Friday.
“Survey evidence indicates that about one-quarter of small businesses currently receiving income support would close if the support measures were removed now, before an improvement in trading conditions.”
While the RBA acknowledged there was “a high degree of uncertainty about the magnitude and timing” of those failures, the prognosis doesn’t look good.
For one, the number of business insolvencies has been suppressed since March as the government allowed owners to continue operating despite mounting debts.
While helpful at the time, various groups have warned that all that may do is create a business blowout further down the line, that will have even larger ramifications as owners scramble to settle with their creditors.
So too will $200 billion in loan deferrals need to be dealt with by January. It’s telling that even with that option, the RBA notes that commercial vacancies are rising and especially for retail businesses.
“Retail vacancies rose sharply over the first half of 2020. The biggest increase has been in central business districts (CBDs), where vacancy rates have risen to over 10%,” the RBA wrote.
“Further increases in vacancy rates are likely and department stores have accelerated planned closures.”
All of this will have greater consequences for Australian workers, who face the growing