Strong demand for asset finance in preparation for the future

New data shows an increase in equipment and machinery investment as businesses prepare for the future despite supply constraints impacting Australia’s SME businesses.

According to data from the Commonwealth Bank of Australia, demand for asset finance has increased despite some being cautious amid sustained losses from lockdowns, uncertainty around COVID-19 and the unpredictable weather.

The data showed that equipment and machinery went up “significantly” in the first six months of the 2022 financial year compared with the same period in the previous financial year (an increase of 87 per cent).

CBA’s executive general manager of business lending, Grant Cairns, said that the surge in demand can be attributed to government incentives, such as the “instant asset write off” scheme and businesses offsetting supply constraints.

“After the government extended the instant asset write off scheme last year, we saw a big uplift in financing for vehicles and equipment and expect this to continue into 2023,” Mr Cairns said.

“The government-backed SME Recovery Loan Scheme is also available until 30 June 2022 and is an excellent initiative to ensure more businesses can access low lending rates on flexible terms.”

Heavy machinery investment up

Mr Cairns said that small and large businesses were purchasing equipment and machinery “months in advance” in response to supply constraints, with record demand coming from South Australia.

In the six months to December 2021, demand for equipment financing was at its highest amongst small and medium businesses in South Australia, as lending increased by 198 per cent, followed by Victoria with 181 per cent.

Western Australia and NSW didn’t record the same spike in demand, however, both states saw increases nonetheless, 84 per cent and 53 per cent respectively.

The largest new lending growth was in prime movers, which increased by 1665 per cent, year on year.

Other machinery which saw an increase in demand is seen in the table below:

Table 1: Demand change for machinery

Mr Cairns foresees continued investment in capital goods to fuel future growth as the Australian economy is “looking strong in 2022”.