Insolvency pressure across Australia remains elevated, with non-bank lenders now driving a growing share of court-based enforcement as major banks pull back, new data shows.
This prompts insolvency solutions and business rescue firm Jirsch Sutherland to urge company directors to take a cautious, well-advised approach when considering non-bank funding.
The latest Alares Credit Risk Insights report shows non-bank lenders have steadily increased court actions since 2019 and are now at record or near-record levels.
The increase accelerated through 2023 and 2024 and has remained elevated into 2025. In contrast, court actions by the big four banks peaked in 2024 and eased in 2025, highlighting a clear divergence in creditor behaviour.
“From an insolvency perspective, enforcement pressure hasn’t fallen – it has shifted,” said Andrew Spring (pictured), partner at Jirsch Sutherland. “While the ATO remains the dominant source of court action, non-bank lenders are accounting for an increasing share of insolvency-related enforcement as the major banks step back.
“As banks pull back on SME lending, more businesses are turning to non-bank lenders. With credit tightening and risk appetite shrinking, traditional finance is getting harder to secure, pushing many SMEs toward alternative funding at a time when they can least afford it.”
The rise in business failures aligns with regulators’ observations that insolvencies are rebounding from unusually low pandemic-era levels as support is withdrawn, ATO enforcement resumes, and businesses face higher costs, weak demand, and elevated interest rates.
The enforcement shift is occurring against a backdrop of sustained insolvency growth. After a brief dip in November 2025, insolvencies rose again in December, with year-on-year numbers once again exceeding 2024 levels. On an annual basis, insolvencies have followed a consistent upward trend since the COVID-era lows.
The Alares Credit Risk Insights report also shows:
Patrick Schweizer, director of Alares, says the divergence in court activity reflects a structural shift in lending behaviour since COVID.
“After COVID, both the big four banks and non-bank lenders steadily increased their court recoveries,” Schweizer said. “However, the big banks did a U-turn in 2025 and started decreasing their court activity, whereas non-bank lenders continued to increase at an even higher rate.”
He says the trend is likely linked to changes in where credit risk is being written.
“Speculating on cause and effect is always difficult, but I suspect the big four are now heavily focused on very low-risk lending, particularly residential mortgages and blue-chip corporates,” Schweizer said.
“This is pushing SMEs and borrowers with less-than-perfect credit histories towards second, third and fourth-tier lenders. There has also been a relative explosion in new private lending over the past couple of years.”
Spring says the data reinforces the need for directors to fully understand the risks associated with non-bank finance.
“Non-bank funding can play an important role in certain situations, but it often comes with higher costs, tighter covenants, and faster enforcement triggers.
“Easy access to non-bank lending and low-doc finance doesn’t remove a director’s responsibility to act prudently. Before taking on more debt, directors need to stop, look in the mirror and be confident the decision won’t compromise the business’s long-term viability. Directors need to understand how quickly conditions can escalate if trading deteriorates, and why early advice is critical.”
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