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25% of small businesses would close if stimulus stopped today

Adrian Flores
Adrian Flores
12 October 2020 1 minute readShare

Around a quarter of small businesses currently receiving income support would close today if the measures were removed immediately before any improvement in trading conditions, according to the Reserve Bank of Australia.

The RBA’s Financial Stability Review for October 2020 also found that at least 10 to 15 per cent of small businesses in the hardest hit industries still do not have enough cash on hand to meet their monthly expenses.

“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 said.

The review said business failures are expected to increase, although the RBA also noted there being a high degree of uncertainty about the magnitude and timing.

“It will depend on the strength of the economic recovery, which will be influenced by the duration and severity of future COVID-19-related disruptions, and the timing and extent of the unwinding of the various support measures,” the review said.

“Bankruptcies and insolvencies are currently very low because of the income support, loan repayment deferrals and temporary insolvency relief.”

Retail hit hard by falling tenant demand for commercial property

The RBA found that vacancy rates for commercial property are rising, putting pressure on commercial landlords, and have been particularly pronounced in the retail sector which was experiencing challenges before the pandemic.

It said retail vacancies rose sharply over the first half of 2020, with the biggest increase in the central business districts (CBDs), where vacancy rates have risen to over 10 per cent.

“Further increases in vacancy rates are likely and department stores have accelerated planned closures,” the RBA said.

“In contrast, conditions in the industrial property market are more favourable, with liaison suggesting increased demand for warehouses and distribution centres since March, driven by the accelerated shift towards online retailing and strength in food sales.”

25% of small businesses would close if stimulus stopped today
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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