Small Businesses Are Still Borrowing, Just Not to Grow

Australian SMEs have shifted into defensive mode. New lending data from non-bank lender Banjo Loans shows businesses are borrowing less, borrowing smaller, and in many cases walking away from approved loans altogether.

The Banjo SME Business Barometer, which tracks lending activity across the non-bank sector, found that average loan sizes fell 20 per cent in Q4 FY26. Loan applications dropped 28 per cent. But the volume decline is not the real story. It is what businesses are doing with the money.

Two kinds of pulling back

Businesses turning over $10 million or more cut their average loan sizes by 33 to 40 per cent. These are not distressed businesses. They are businesses that have decided this is not the time to invest. Equipment upgrades, fleet expansion, capacity builds: all on hold.

At the other end, businesses under $2 million turnover are actually borrowing more. Average loan sizes in the $500K to $2M segment rose 15 per cent. But they are not investing either. They are covering wages, paying suppliers, keeping the lights on. The money has shifted from growth to survival.

The sharpest number in the report

Borrower-led loan cancellations rose 814 per cent during the quarter. Businesses are applying, getting conditionally approved, then deciding not to proceed. That is not a credit problem. Lenders are willing to lend. It is a confidence problem. Businesses are testing whether they can borrow without actually committing.

The counterweight

Arrears across multiple sectors actually improved. Manufacturing saw 30-plus day arrears fall 97 per cent year on year. Construction services dropped 91 per cent. Accommodation and food services fell 85 per cent. Businesses are not defaulting. They are tightening. This is caution, not distress.

What to do with this

If you are borrowing to cover operating costs, the first move is not more credit. It is restructuring the cash that already flows through the business. Renegotiate supplier payment terms. Many suppliers will extend from 14 to 30 days for reliable accounts, and that is free working capital. Review which recurring costs can be smoothed: annual insurance premiums, software subscriptions paid yearly, maintenance contracts. Turning lumpy costs into monthly ones reduces the peaks that force reactive borrowing.

If you are in the camp that has pulled back from growth spending, the question is whether the pause is strategic or reflexive. The businesses that invested through the 2020 downturn at the right price point came out ahead when conditions turned. Put a trigger on it: name the specific metric, a rate cut, a revenue target, a signed contract, that would change your mind. Use the pause to get quotes, update financials, and line up suppliers so you can move in weeks instead of months when the trigger hits.

This article is general information only and is not financial advice.