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New data from the first quarter of the year 2026 has shown that while overall business credit demand had flattened, ‘high-risk’ small businesses (those with credit scores of 301–600) were increasingly making multiple inquiries to different lenders to try and access finance.
According to the latest Equifax Business Market Pulse for 1Q26, overall business credit demand dropped marginally over the first three months of the calendar year, falling by 0.4 per cent as businesses responded to rising inflation and interest rates.
The data, which measures the volume of credit applications for business loans, asset finance, and trade credit that go through the Equifax Commercial Bureau by financial services credit providers, revealed that some product types fell in popularity at the start of the year, while others picked up.
For example, trade credit demand fell by nearly 12 per cent in the March quarter, the Equifax Business Market Pulse found, while asset finance demand increased by 3.1 per cent.
There was also a growing disparity in credit demand between the size of businesses seeking finance and their credit profile.
According to Equifax, credit demand from small and medium-sized enterprises (SMEs) contracted by 7.0 per cent year on year in 1Q26, as this cohort of borrowers scaled back on inquiries in response to interest rate increases and inflation impacts and a perception that lending conditions were tightening. (This period only included the initial impacts of the conflict in the Middle East, which saw the Strait of Hormuz close in early March, and resulted in rising global inflation and price increases.)
The research reveals that subprime SMEs have been growing increasingly frantic to find lending solutions this year, with this ‘high-risk’ borrower cohort increasingly shopping deals around to multiple lenders (making multiple inquiries to different lenders within a 30-day period).
Activity among high-risk SMEs surged to 33 per cent in 1Q26, compared to just 7 per cent for low-risk entities.
Brad Walters, general manager, commercial at Equifax, said: “What we are seeing today is the culmination of a trend that has been building over the past few months, and is now at its highest levels in the last eight months.
“We are seeing a divergence in how Australian businesses are approaching the credit market. For the majority of stable, low-risk entities, there is a sense of ‘rate resignation’ – they are opting for the speed and certainty of known lending relationships. In contrast, high-risk SMEs seem to be in a state of accelerated credit shopping, having to cast a much wider approval net, often applying to four or five lenders to find an approval.
“This surge then appears to be further amplified by shifts in market conditions such as rising fuel costs, inflation and interest rates.
“Given the integral role small and medium enterprises play in the Australian economy, these developments within the SME sector are noteworthy. SMEs represent a significant portion of economic output and employment so shifts in this cohort are important for understanding broader economic trends.”
Nevertheless, Equifax outlined that while there had been an elevation in credit shopping behaviours across subprime applicants, the relative proportion of higher-risk applicants remains similar to previous periods.
Moreover, there was a slight improvement in the credit quality of higher-scoring applicants, resulting in a small increase in the average credit quality across the entire applicant pool.
Building on the three-year highs established in late 2025, average business loan credit scores rose by 4 points year on year, reaching the highest levels seen in nearly two years.
“This SME cohort continues to demonstrate resilience, maintaining higher credit scores, on average, relative to larger businesses. This suggests that while high-risk SME segments have scaled back their activity, a resilient and savvy group of SMEs remain active, prioritising strategic credit access despite broader market conditions,” Walters said.
“The fact that average scores are still exhibiting relatively sound levels of credit quality on average, may partly reflect a narrowed field of applicants, but it also indicates that well-managed businesses are successfully adjusting to a ‘new normal’.
“Following the resilience we saw in the mid-market last year, what we are potentially seeing here are businesses becoming even more selective about when, and how they borrow to ensure their balance sheets can withstand ongoing changes.”
The construction and logistics sectors both continue to demonstrate signs of pressure amid market conditions, with insolvencies continuing to climb. Company insolvencies were 3.7 times higher in 1Q26 than 2022 levels, for example. Large logistics operators were found to be “leaning into trade credit” to manage immediate liquidity and fuel price volatility. Indeed, this was up 26 per cent year on year for large logistics operators.
ATO tax debt continued to burden businesses, with disclosures up 11 per cent, with the number of new tax debt disclosures for transport & logistics businesses in the month of March up by 97.7 per cent year on year.
“As observers of the credit market, we see rising tax debts as one of the key indicators of cash flow dynamics,” Walters commented.
“While large businesses in logistics and construction are using trade credit to maintain momentum, it seems many smaller players are avoiding new debt entirely, with new company formations in construction falling 53 per cent YoY this quarter as the sector enters a period of consolidation.”
Business conditions have been hard-hit this year, with confidence falling among SMEs as they tackle rising costs and inflation, high levels of ATO debt, and prepare for new Payday Super reforms and the spectre of further interest rate hikes.
Earlier this year, SME lender Banjo Loans revealed that applications through the non-bank fell 28 per cent in the March quarter and were now down 22 per cent compared to a year earlier, as they responded to a potential economic downturn.
The value of loan applications also declined, Banjo revealed, dropping 34 per cent over the quarter and 13 per cent year on year, reinforcing signs that businesses are pulling back on borrowing as conditions become more uncertain.
[Related: Loan demand drops as SMEs turn defensive]
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