iscover 
While National Australia Bank’s (NAB) Monthly Business Survey found that business confidence rose 9 points in June to -5 index points, credit bureau Equifax found overall demand for business loans increased by just 3.8 per cent year on year, trailing the 12-month average.
Overall demand for asset finance fell 2.4 per cent over the year, extending the cautious investment trend seen in May.
Additionally, Equifax’s data indicated a widening gap in borrowing activity between large businesses and SMEs, saying smaller firms remain cautious despite early signs that the broader economic outlook is improving.
NAB found business conditions held steady at +3 index points for a third consecutive month, while cost and price pressures continued to moderate. Retail prices also declined for the first time in seven years, signalling inflationary pressures are continuing to ease.
NAB chief economist Dr Sally Auld said confidence had recovered much of the sharp decline recorded in March, as fears surrounding energy markets and broader geopolitical risks had subsided.
“The picture that emerges is one of an economy that is slowing, but not as sharply as many had feared a few months ago,” Auld said.
She said that the survey also suggested the inflationary impact of the Middle East conflict had been lower than expected, with purchase cost growth easing from its March peak and price growth moderating across most industries.
2-speed economy deepens
Despite the improvement in sentiment and conditions, Equifax said different-sized businesses have become increasingly selective about taking on new debt.
While SME loan demand was effectively flat, rising just 0.5 per cent, loan demand from large businesses climbed 7.8 per cent nationally, reinforcing what Equifax described as a “multi-speed economy”.
Equifax general manager of commercial Brad Walters said larger businesses still had the financial capacity to invest, while many smaller firms had shifted their focus to preserving cash.
“After a period of heavy borrowing, possibly to keep up with inflation and rising costs, Australian businesses now appear to be moving into a much more cautious, conservative phase,” he said.
“Large enterprises still have the financial runway to borrow and expand... meanwhile, small businesses have pulled back.”
Equifax’s data on asset finance tells a similar story.
While large businesses are still upgrading equipment (1.7 per cent YoY growth), demand from small businesses fell by 5.6 per cent.
The divide was particularly evident in the services sector, where asset finance demand among large businesses surged 17.1 per cent, while applications from SMEs slumped 13.7 per cent.
Cash flow pressures remain
Equifax’s data also said many SMEs are continuing to face cash flow pressures despite improving business confidence.
The proportion of commercial debt paid between 31 and 60 days late increased to 10 per cent in May, up from 7.4 per cent in March, while severe long-term defaults eased back to around 8 per cent after spiking in April.
Walters said: “Given the economic environment, this may be a sign that businesses are intentionally taking a bit longer to pay their suppliers as a practical way to manage their weekly cash flow.”
Broker Daily has spoken to both lenders and brokers on how cash flow pressures are influencing businesses’ credit behaviour, with an increased demand for working capital facilities and a move from “defensive borrowing to strategic borrowing”.
Additionally, a recent audit of the Australian Tax Office found that small business debt had increased by $19.4 billion between 2018–19 and 2024–25, a 118 per cent increase.
In May, fellow credit bureau CreditorWatch found payment arrears had climbed to their highest level since January 2020.
The pressure is also beginning to spill over into business owners’ personal finances.
According to Equifax, SME owners carried an average mortgage balance of $585,000 in May, around 50 per cent higher than the $379,000 average among non-SME borrowers. Their personal mortgage delinquency rate was also 4 basis points higher than the broader population.
“This could be an indication that many small-business owners are making tough choices, possibly delaying their own personal mortgage payments to keep their businesses running,” Walters said.
[Related: Policy and personnel drive lender choice across commercial loans]
Want to see more stories from trusted news sources?Make Broker Daily a preferred news source on Google.