Lender urges SMEs to diversify clients and funding to avoid collapse
A significant number of small and medium-sized enterprises (SMEs) in Australia face collapse if they lose a major client, according to new research from non-bank lender ScotPac.
The latest SME Growth Index Report, released bi-annually by ScotPac, revealed that 17% of SMEs would likely shut down if one major customer or supplier became insolvent. The finding underscores the ongoing threat of concentration risk within the SME sector.
The warning comes amid a broader uptick in corporate failures. Data from the Australian Securities and Investments Commission (ASIC) showed that 3,306 companies entered insolvency in the first quarter of 2025 alone. Over the past three years, restructuring appointments have surged sevenfold.
The construction sector, employing nearly 10% of Australia’s workforce, has been among the worst affected. More than 2,600 construction firms went insolvent in the 12 months to March 2025, marking a 25% increase compared to the prior year.
ScotPac’s report also found that the average SME would suffer a 22% decline in revenue if a key client was lost. Meanwhile, 59% of businesses that forecast declining revenue growth have now entered full contraction. That figure is three times higher than it was in 2019, indicating that further business failures may be on the horizon.
Beyond construction, the hospitality industry is also under pressure. Restaurants and cafés, in particular, are grappling with rising operational costs and reduced consumer spending, making them especially vulnerable.
ScotPac chief executive Jon Sutton (pictured) said SMEs should reassess how exposed they are to single client or supplier relationships.
“This feedback tells us that too many SMEs are just one shock away from collapse,” Sutton said. “Relying heavily on a single client or supplier can create serious vulnerability – especially in a volatile trading environment.”
Sutton added that the increase in insolvencies reflects broader economic pressures. “Over the past 12 months we’ve seen insolvency levels not witnessed in more than a decade, driven by rising costs, aggressive debt collection, and weakening consumer demand.”
He said that ScotPac is working with brokers to help businesses reduce exposure and improve access to finance through tailored lending solutions. “In challenging conditions, businesses that diversify their client base and secure flexible funding are the ones that survive and thrive,” he said.
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