Investors, insurers and businesses are taking a cautious approach to dealing with providers of supply chain finance in the wake of the Greensill collapse, creating more uncertainty in the SME finance market as the JobKeeper program comes to an end.
The collapse of Greensill, a supply chain finance specialist, was triggered by insurer IAG’s decision not to renew insurance of Greensill’s A$10 billion of trade credit. That decision prompted Greensill’s key backer Credit Suisse to withdraw financial support.
Some other finance companies with exposure to Greensill have had to address their own funding positions. US finance company Taulia and local company Earlypay have announced that they are refinancing programs that were previously funded by Greensill.
Equifax Australia and New Zealand head of product and ratings services, Brad Walters, said: “Now that there has been some withdrawal in the credit insurance space, you will see other trade credit insurers looking closely at the space.”
In turn, this will make investors who fund the sector cautious. The end result is that another source of scarce working capital for small and medium businesses may be constrained.
Walters has been putting together a picture of the SME environment starting next month, when two of the key COVID support measures, JobKeeper and JobSeeker, end.
The positives include the strong pick-up in GDP and the sharp fall in unemployment, the fact that the great majority of business borrowers have come off deferral arrangements and returned to normal repayments, and strong business and household savings trends.
Less positive signs are that the underemployment level remains high, business capital expenditure is weak and the removal of some relief measures has already caused a spike in business insolvencies.
In January, temporary insolvency relief measures ended. According to CreditorWatch’s Business Risk Review, there was a 61 per cent jump in external administrations in February, compared with the previous month.
CreditorWatch has calculated the probability of default by businesses in different industries. Accommodation, food and beverage services is at the top of the list, followed by transport, post and warehousing, and public administration and safety.
CreditorWatch chief executive Patrick Coghlan said: “The industries most impacted by COVID restrictions last year remain front of mind as those most likely to default on payments as we move through 2021.”
Walters said there is no doubt some business that would have failed last year kept going because of JobKeeper and other measures. The pick-up in administrations in February may be a sign of things to come.
He said: “Seventy-five per cent of business insolvencies come from court and creditor wind-ups. One of last year’s insolvency relief measures was an increase in the amount that can trigger a statutory demand from $2000 to $20,000. That has come back now.
“One thing we know from past experience is that the longer you have a loan deferral period, the higher the level of insolvencies coming out.”
Experian released the findings of its latest Global Insights Report, which shows that 49 per cent of businesses are concerned about collections.
Fifty-eight per cent of businesses feel confident about their credit risk models – down from 75 per cent in October.
Experian general manager of decision analytics, Mat Demetriou, said: “Business are right to be prepared. The various government support programs have enabled Australians to avoid overdue debt throughout 2020. However, our credit bureau reveals worrying emerging trends: an increase in the rate of new defaults against newly opened credit accounts over the past year; and average credit scores falling in the last quarter.”