Australian business loan demand rose 11.3% year-on-year in August, but the growth is masking a more cautious picture underneath, with businesses pulling back sharply on financing for equipment and vehicles as they prioritise cash flow over expansion.
The latest Equifax Business Market Pulse data shows national business loan enquiries climbed to +11.3% YoY in August, up from +6.2% in July and +3.8% in June. Over the same period, demand for asset finance fell to -12.7% YoY nationally, extending a decline that has deepened every month since June, when it sat at just -2.4%.
Businesses appear to be extending the operational life of existing machinery, vehicles, and IT infrastructure rather than taking on new long-term debt.
The divergence between the two lending categories points to a shift in why businesses are seeking credit.
Brad Walters (pictured), general manager of commercial at Equifax, said the widening gap reflects financial management rather than business expansion.
"In contrast to this asset pullback, borrowing for working capital is growing," Walters said.
Credit quality trends point the same way. Despite the jump in application volumes, average applicant credit scores dropped by two to three points year-on-year – a signal, Walters said, of "a higher number of lower scoring, or higher risk, applicants are seeking credit, which can indicate liquidity friction across the market."
The pullback on asset finance is most pronounced in the production sector, where applications fell 17.4% YoY, driven largely by SME construction operators, who cut asset finance applications by 23.5% YoY.
Equifax linked the trend to persistent overhead costs, payment delays, and a 25% year-on-year rise in ATO tax defaults, pushing smaller operators to preserve balance sheet liquidity rather than invest in new equipment.
Nationally, active ATO defaults rose 22.6% year-on-year to almost 36,900 in August, with NSW, Victoria and Queensland all recording increases above 22%.
"As Australian business leaders navigate the remainder of 2026, credit allocation reflects a disciplined focus on balance sheet resilience over physical expansion," Walters said.
That note of caution sits alongside a more measured picture at the economy-wide level. The Reserve Bank's March 2026 Financial Stability Review found company insolvencies "have stabilised at around longer run averages" nationally, even as the share of companies entering insolvency "remains elevated in the hospitality and construction sectors" – suggesting the pressure Equifax is picking up may be concentrated in specific sectors rather than signalling broad-based distress.
Get the hottest and freshest property and mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
