Australian SME borrowing activity softened in the final quarter of 2025 as uncertainty over inflation and interest rates weighed on business decisions, according to new data from non‑bank lender Banjo Loans.
The shift came despite a rebound in broader business sentiment, with Roy Morgan Business Confidence jumping 6.3pts to 105 in December – its highest level in nine months – after the Reserve Bank left the cash rate on hold at 3.6% for a fourth straight month.
The latest Banjo Barometer for Q2 FY26 shows SME borrowing dipped 5% following a 14% spike in the September quarter, when loan volumes briefly lifted.
“After a strong spike in September, that flowed into October, talk of rate cuts being a thing of the past led to a very subdued final two months for SME borrowing,” said Banjo Loans CEO Guy Callaghan (pictured).
“October saw a brief lift, likely tied to Black Friday activity, before demand flattened or declined through November and December.”
Application numbers eased slightly, dropping about 15% from Q1, with demand shifting toward larger loans from larger, more established businesses. Business quality and conversion rates remained steady, reflecting a lending environment where lenders are increasingly selective and weaker businesses are more cautious about applying.
The Banjo Barometer shows ongoing stress in several core sectors. Manufacturing borrowing fell 38% on the previous quarter, Transport, postal, and warehousing dropped 39%, and wholesale trade was down 15%, with these industries recording fewer loans and more struggling businesses.
New South Wales and Victoria, the nation’s largest SME markets, remained stable but showed limited growth, dampening overall lending numbers. These states continue to generate a higher share of funding requests from larger businesses, while smaller states are filling the gap with demand from smaller operators.
“Application volumes have eased slightly, while demand has continued the trend toward larger loans from larger businesses, and lenders remain selective. NSW and Victoria are stable but subdued, while smaller states are seeing more activity from smaller operators,” Callaghan said.
Arrears increased among financial services businesses, while transport remains a key “watch sector” in Banjo’s portfolio.
The data also points to a growing gap between applications and final drawdowns. More businesses are being granted conditional approvals and then delaying or reassessing their funding decisions, including opting to self‑fund where possible.
That caution sits uneasily alongside headline business confidence surveys showing many firms feeling “better off” and expecting “good times” for the economy, suggesting that improved sentiment has yet to translate into a sustained appetite for new debt.
Declines continue to be driven by poor bank statement conduct and weak cashflow management, which raise concerns about ongoing serviceability. ATO debt remains a major factor weighing on approval outcomes.
“Based on the latest Banjo Barometer data for Q2, we’re seeing more businesses seek funding, receive conditional approval, and then pause or reassess their options, including self-funding,” Callaghan said.
“This underscores the limited confidence SMEs have in the current economic climate, as they navigate an increasingly complex and uncertain financial landscape. In the absence of rate relief, policy support or clearer communication to lift consumer and business confidence, we expect SMEs to remain subdued and extremely cautious in their decision-making.”
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