New figures point to weaker SME lending demand as firms delay funding decisions
Small and medium-sized enterprises (SMEs) pulled back on borrowing in the final quarter of 2025, as ongoing uncertainty around inflation and interest rates tempered funding decisions, according to new figures from non-bank lender Banjo Loans.
The latest Banjo Barometer for the second quarter of financial year 2026 shows SME lending volumes fell by about 5% after a 14% rise in the September quarter, when demand briefly accelerated.
Some lenders have been forecasting further cash rate hikes, while some expect the RBA to maintain the cash rate at 3.6%. This uncertainty is clouding expectations for how competitive conditions will be across both home lending and SME finance in the year ahead.
“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 Guy Callaghan (pictured right), chief executive officer at Banjo Loans.
“October saw a brief lift, likely tied to Black Friday activity, before demand flattened or declined through November and December.”
Banjo’s data indicates a modest decline in overall application numbers, with submissions down around 15% from the previous quarter. At the same time, the profile of demand shifted towards larger facilities sought by more established businesses.
Credit quality and conversion rates were reported as broadly steady, suggesting that lenders remain selective while weaker or more marginal businesses appear increasingly reluctant to seek external finance.
The Banjo Barometer also highlights ongoing pressure in several key industries. Manufacturing borrowing dropped 38% quarter-on-quarter, transport, postal and warehousing fell 39%, and wholesale trade declined 15%, with fewer facilities written and more businesses showing signs of strain.
New South Wales and Victoria, the largest SME markets, were described as stable but showing limited growth, which weighed on overall lending volumes. Larger borrowers in these states continue to account for a greater share of funding requests, while smaller states are seeing more activity from micro and small businesses.
“Application volumes have eased slightly, while demand has continued the trend toward larger loans from larger businesses, and lenders remain selective,” Callaghan said. “NSW and Victoria are stable but subdued, while smaller states are seeing more activity from smaller operators.”
Rising arrears were noted among financial services businesses, while the transport sector remains a key “watch” segment in Banjo’s portfolio.
The Barometer also points to a widening gap between approvals and drawdowns. An increasing number of SMEs are securing conditional approval for funding and then postponing or reconsidering whether to proceed, with some opting to self-fund where cash reserves allow.
Declines in approvals continue to be driven by poor bank statement conduct and weak cashflow management, which raise concerns about serviceability and ongoing viability. High levels of ATO debt remain a significant drag on credit 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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