Small business lending is proving to be a bright spot in the Australian credit market, with both bank and non-bank lenders reporting solid growth even as other segments, including home lending, soften under the weight of a challenging economic backdrop.
On Thursday, National Australia Bank (NAB) revealed that lending balances in its business and private banking division had risen 4% over the June quarter, outperforming other parts of the bank, including home loans.
Andrew Auerbach, NAB's group executive for business and private banking, said the result was driven by "the resilience of our business customers who continue to find opportunities to grow and innovate.
"Business and private banking has continued to perform well in a challenging economic environment," he added.
Those challenges include higher interest rates, inflationary pressure on cash flow, changes to tax and superannuation settings, and ongoing global uncertainty.
But it's not just NAB that's seeing growth in small business lending. Non-bank lender Bizcap said small business funding volumes grew 45% over the past year, driven by a mix of market pressures and businesses pursuing new avenues for growth.
"Demand has been growing for small business loans for the past couple of years. But we've seen a sharp increase in demand for funding over the past 12 months," Rebecca del Rio, chief executive officer APAC and global chief revenue officer of Melbourne-headquartered non-bank lender Bizcap, told Australian Broker. "We’ve noticed an increase in businesses looking for funding at shorter notice as they navigate an increasingly dynamic operating environment."
The demand reflects both ongoing pressures facing small businesses and stronger conditions in the lending market, she added.
"On the pressure side small- and medium-sized enterprises (SMEs) are still dealing with high input costs, wage pressure, slower customer payments and tighter cash buffers," the CEO explained."On the opportunity side, competition among banks, brokers and non-bank lenders has improved pricing, speed and product choice, which means more businesses are prepared to access finance when they need it."
Many of those loans go towards cash-flow support, working capital and refinancing, del Rio said. Still, a large portion are for growth initiatives, including business expansion (21%), equipment purchases (20%) and inventory (11%).
"Businesses are still investing," del Rio said. "But they're doing it very selectively, especially where the funding supports productivity, equipment, technology or a clear return. It's less about growth for growth's sake and more about protecting liquidity and backing investments that make the business more efficient."
Over at Sydney-based non-bank lender Prime Capital, Chief Executive Officer Steve Sampson also said appetite for small business lending is growing, particularly among commercial borrowers.
"We have seen a noticeable increase in demand for small business lending over the past 12 months," Sampson said. "Commercial borrowers have become increasingly active as they look for alternative sources of funding, particularly from non-bank lenders who can provide greater flexibility and faster decision-making."
The shift, he explained, has been driven by inflation, supply chain pressures and rising operating costs, alongside new opportunities emerging across a range of sectors. In addition, many SMEs are thinking more broadly about debt.
"A trend I've noticed is a growing acceptance among SMEs that debt is a strategic tool rather than simply a necessity," Sampson said. "Businesses are increasingly using finance to accelerate growth, acquire assets and improve operational resilience, rather than waiting until funding becomes essential. This reflects how much more businesses see how non-banks can help with creative solutions to solve business problems."
Confidence is also impacting the market. Sampson described a "modest improvement in SME confidence," with businesses becoming more comfortable making strategic funding decisions, such as refinancing ATO debt into structured commercial facilities.
He added that market headwinds prompted many businesses to delay major investment decisions, a dynamic that he said has started to shift.
"Rising interest rates created uncertainty and led many businesses to postpone major investment decisions," Sampson explained. "Rather than a significant increase in borrowing demand, we are now seeing businesses regain the confidence to proceed with plans that had previously been deferred."
Del Rio, meanwhile, reported that confidence is "recovering in pockets, rather than surging across the board.
"There are definitely businesses looking for ways to grow and transform, but overall SME confidence is still fragile and below where you would want it to be for a broad investment upswing," she said. "The willingness to invest is there when the numbers stack up, but most SMEs are still balancing opportunity against margin pressure, cost inflation and compliance change."
Still, del Rio added: "We expect that demand for small business lending will continue through the second half of the year. But it will likely be focused on working capital, cash-flow management, refinancing and selective asset-backed investment, because those are the areas most closely tied to day-to-day resilience. If confidence and the rate outlook continue to stabilise, that could support a broader improvement. But for now the theme is disciplined borrowing rather than an across-the-board surge in expansion debt."
