SUMMARY: What SMEs Are Doing Differently in 2026!
Inflation has been the persistent “speed bump” for the economy. After some promising progress early last year, it’s settled just outside the Reserve Bank of Australia’s preferred range. The upside? Businesses have had time to adjust, plan, and tighten operations. The trade-off is that the outlook for sustained interest rate cuts through 2026 has softened, and the new year begins with rates likely to stay higher for longer (with a chance of increases).
Against that backdrop, Aussie SMEs finished the year in a more measured, deliberate position. Our latest barometer shows loan applications eased in the final quarter, with growth largely driven by smaller operators seeking additional finance. At the same time, fewer larger SMEs lodged applications—though those that did tended to pursue higher-value loans.
The most encouraging signal is on loan health: SMEs clearly focused on discipline and cashflow management, with arrears almost halving in the December quarter. And in a sign of careful decision-making, also we saw a noticeable number of business owners apply for funding, then decide not to proceed—suggesting many are weighing opportunities with real caution rather than borrowing by default.
As we look ahead, it’s clear that understanding what SMEs are doing differently in 2026 will be crucial for staying competitive in the evolving market landscape.
TRAJECTORY OF LOAN APPLICATIONS*
Loan applications eased in the final quarter to close an unpredictable 2025, ending 5% lower than the year before. The value of loans also edged down 5% for the quarter. After carrying the lion’s share of new lending earlier, larger SMEs drove much of the late-year pull-back.
Meanwhile, mid-sized SMEs (revenue between $2 million and $5 million) stood out—borrowing increased 47% in the December quarter, continuing a steady two-year upward trend. That’s a strong indicator that this segment remains confident and actively investing.
INDUSTRY TRENDS
In line with ongoing investment in infrastructure and building projects, SMEs in Construction continued to show solid momentum. The sector recorded a 14% lift in loan applications during the December quarter—its highest level in the past two years.
Retail, and Healthcare and Social Assistance, also held borrowing activity steady. Outside of those areas, many industries took a more conservative approach to new borrowing, consistent with a “protect the balance sheet” mindset.
LOAN QUALITY
There was a marginal decrease in declined applications during the December quarter, and across the year overall declines were stable. Importantly, the quarterly improvement included fewer declines due to adverse credit (-29%) and serviceability concerns (-23%)—a constructive sign that borrower quality and affordability assessment outcomes are improving.
At the same time, there was an increase in applications declined for not meeting minimum eligibility criteria. Debts with the Australian Taxation Office resurfaced as a factor, returning to a 12-month high—highlighting that housekeeping items (lodgements, payment plans, current BAS) can make a meaningful difference to approval outcomes.
MANAGING LOAN REPAYMENTS
This was a strong quarter for debt management. Total arrears at 30+ days dropped 41%, reaching the lowest level in more than three years. The improvement was led by Construction (down 77%) and Retail (down 75%). That’s a very real “green flag” for business resilience and tighter operational control.
One area to watch: Transport, Postal and Warehousing recorded a second consecutive quarter of rising arrears. The pressures on transport and logistics are well known.
REGIONS
Victoria (VIC)
There was a modest recovery in loan activity after the prior quarter fell to a two-year low. Even with the lift, applications remain 25% lower than the year before—so it’s a developing story worth watching.
New South Wales (NSW)
Larger businesses drove a strong quarterly rebound, with applications up 133% off a low base—the highest application count for the year. The value of new loan applications also rose sharply (up 126%), suggesting renewed appetite for larger funding outcomes.
Queensland (QLD)
After improving in the previous quarter, applications pulled back 28% and were 34% lower than the same time the year before—consistent with a cautious, wait-and-see approach.
Western Australia (WA)
Loan applications finished the year steady, with no change in the December quarter and flat across the year—reflecting a stable but subdued lending environment.
South Australia (SA)
South Australia maintained strong momentum for a second straight quarter. Following a 300% lift previously, SMEs recorded another 146% increase in applications in the December quarter—an eye-catching result that suggests strong local confidence and investment activity.
CONCLUSIONS AND TAKE-AWAYS
The new year begins with a more realistic interest rate outlook than many expected six months ago. Inflation remains “sticky”, which continues to challenge both consumers and business. The silver lining is that SMEs are responding in a way lenders love to see: with discipline, selectivity, and better debt control.
Borrowing intentions cooled evidence that business owners are actively stress-testing decisions and prioritising resilience. While new applications stayed relatively flat, many SMEs focused on paying down existing facilities, materially reducing arrears and improving overall loan health.
The big opportunity now is to keep that same sharp, practical mindset—tightening cashflow, keeping ATO obligations in check, and funding only what clearly improves productivity, margin, or working capital efficiency. That’s how SMEs stay ready to move quickly when the rate cycle eventually turns in their favour.
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