In the midst of the COVID-19 pandemic, the focus for most Australian businesses was revenue recovery. Now, as many come out the other side and the economy is rebounding, there’s a sense of cautious optimism.
According to CommBank’s research, investment confidence over the next 12 months is going to be heavily dependent on the removal of pandemic-related restrictions, but the future is looking positive. Interest rates are near zero and some government stimulus support is still available, making it an opportune time for businesses to consider upgrading their assets.
Our research surveyed more than 900 business decision-makers. It discovered that businesses of all sizes were significantly more likely to invest in plant and equipment or vehicles to support growth opportunities, than they were when surveyed in July last year.
When asked how the COVID-19 pandemic had impacted confidence in asset investment, most business leaders said they were feeling more positive about purchases at the end of last year, compared to how they were feeling in mid-2020.
This was particularly apparent with larger organisations. Businesses with a turnover of $10 million to $100 million were the most confident, with 23% of respondents saying they were more likely to invest in plant, equipment or vehicles to boost growth now, compared to mid last year. Small to medium-sized businesses also reported increased levels of purchasing confidence.
Likelihood of investing in plant, equipment and/or vehicles to support growth opportunities
Unsurprisingly, the research also revealed that larger organisations had coped best during the pandemic, with nearly 40% of large businesses reporting an increase in revenues.
Of those with higher revenues, large businesses were also the most confident to invest in assets in the next 12 months. Nearly half (46%) of the businesses with increased revenues during the pandemic said they were looking to continue their expansion. The services and production sectors, in particular, were the most growth orientated coming out of the pandemic.
What best describes your company’s approach over the next 12 months:
While careful not to overextend, nearly one third (28%) of those surveyed believed their finance needs would increase, albeit slightly, over the next 12 months. The majority of business leaders (51%) said they would take a cautious approach to debt finance, despite recognising the opportunity that current low interest rates represent.
Higher turnover organisations were more bullish in their approach, most likely because they tend to be less volatile in times of economic uncertainty and can typically borrow more easily. A large construction company said that increasing debt to build up working capital and boost its safety stock levels during COVID-19 made obvious sense. Meanwhile, a retail/wholesale business said that with interest rates so low, it was a good time to borrow to purchase equipment and take advantage of the federal government's instant asset write-off*.
However, organisations with a lower turnover – under $2 million – were more bearish in their approach. They were also the businesses most likely to stretch the lifespan of the assets they already have, or to reduce their working equipment needs. Having said this, the overall proportion of businesses stretching their assets had declined by 10% since July 2020.
Government stimulus has helped provide incentives for businesses to purchase new assets. For example, instant asset write-downs have been a catalyst for many businesses to invest in equipment and technologies which will help future-proof their business and create longer term efficiency and growth. The federal government recently extended its instant asset write-off* initiative to June 2023.1 The provision can be used for both new and second-hand assets and is available to 99% of businesses across the country.
Others have made use of low cost and tax effective funding enabled by the Reserve Bank Term Funding Facility (TFF).** This initiative has contributed to lower borrowing rates across the market.2
While optimism is returning, business confidence in investment over the next 12 months is heavily dependent on the removal of current COVID-19 restrictions and the roll out of vaccines.
More than a third (39%) of those surveyed said the complete removal of lockdowns and restrictions would give them more confidence to increase their capital investment. This was followed closely by the vaccine rollout (38%), domestic borders reopening (30%), and business revenues returning to pre-COVID levels (30%).
Two-thirds (66%) of survey respondents said they had budgeted for assets over the next 12 months. While this was lower than in the previous survey conducted in the midst of the pandemic, it is roughly on par with pre-COVID purchasing intentions. This indicates that while businesses remain wary, they are also optimistic – and planning for better times ahead.
Purchasing plans over the next 12 months:
To find out more about CommBank’s Asset Finance solutions, visit commbank.com.au/assetfinance or call 1800 ASSETS to access your local Australian based Asset Finance Specialists.
Things you should know
1. Federal Government, Budget 2021-22, accessed June 2021.
2. CommBank, RBA cuts interest rates to deliver economic boost, November 2020.
The CommBank survey statistics used in this article are based on a survey of 911 business decision-makers, conducted by ACA Research for CommBank between 25 November to 17 December 2020, entitled Equip: Issue 13 Asset Finance Thought Leadership Research. All statistics used are from this research unless otherwise stated.
* Tax law is subject to change. For the latest information, please check the ATO website. Commonwealth Bank is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax (financial) adviser.
** Credit provided by the Commonwealth Bank of Australia. These products are only available to approved business customers and for business purposes only. Applications for finance are subject to the Bank’s eligibility and suitability criteria and normal credit approval processes. You should view our current Terms and Conditions for Asset Finance and consider them before making any decision about these products. Rates are subject to change. Fees, charges and Terms & Conditions apply. Commonwealth Bank of Australia ABN 48 123 123 124, Australian credit licence 234945.
