Q2 2025 Commercial Credit Report: Business Loans Surge Amid Rising Insolvency Pressures
Australia’s commercial credit market recorded a 5.2% rise in total demand in Q2 2025, driven largely by a 6.0% surge in business loan activity. The data reveals a market in transition—where certain industries are cautiously investing in growth while others are securing finance simply to keep the doors open.
While headline growth in credit demand is encouraging, the underlying story is one of economic pressure, sectoral imbalance, and heightened insolvency risks. The quarter was defined by persistent cost pressures, shifts in consumer behaviour, and an increased reliance on non-bank lending channels.
National Overview: Lending Growth in a Cautious Economy
Business loans remain the growth engine.
Across the lending landscape, business loans outperformed asset finance and trade credit. The increase was widespread, with Big Four banks recording a 9% rise in enquiries, Tier 2 banks up 11.5%, and non-bank lenders leading at 12%. This growth reflects two distinct borrower profiles:
Capital-intensive sectors looking to invest in core offerings.
Consumer-reliant sectors using credit as a lifeline for operational costs and cash flow stability.
Asset finance demand moderated despite consecutive interest rate cuts earlier in the year. Enquiries rose just 1.4% as many businesses delayed equipment and vehicle purchases, prioritising liquidity over capital investment.
Trade credit enquiries inched higher (+0.9%), but the performance varied across states—Queensland (+3.8%) and regional markets (+4.1%) grew strongly, while Victoria (-2.6%) and New South Wales (-0.6%) contracted.
Credit quality remained stable in business loans, with average application scores sitting 10 points higher than three years ago. However, asset finance and trade credit experienced a greater proportion of lower-score enquiries, signalling increased borrowing from financially stretched businesses.
Sector-by-Sector Analysis
Construction: Survival Mode Despite Lending Uptick
The construction sector remains under significant strain.
Insolvencies reached 1,768 year-to-date, impacting 1.4% of all credit-active construction firms—the highest of any major sector.
Payment delays are more than double the market average, although they have eased slightly since their peak in late 2023.
Business loan demand rose 4.3%, driven by non-bank lenders (+10.3%) and Tier 2 banks (+6.5%), suggesting builders are seeking flexible funding options.
Asset finance demand fell 4.6%, with SMEs recording an 8.7% decline—evidence that capital investments are being deferred.
Outlook: Rising input costs and fixed-price contract pressures mean many construction firms are borrowing to maintain liquidity, not to expand.
Hospitality: Highest Insolvency Proportion in the Market
The hospitality sector is absorbing the combined impact of subdued consumer spending, rising operational costs, and wage stagnation.
Insolvencies surged 27.8% year-on-year, representing 3.1% of all active hospitality businesses—the highest proportion in any industry.
Business loans rose 2.2% as businesses sought survival funding, particularly from regional lenders (+15%).
Trade credit enquiries fell 5%, with many operators using business loans instead to consolidate debts.
Payment delays increased by two days on average, reflecting worsening cash flow cycles.
Outlook: With discretionary spending under pressure, many hospitality operators are likely to depend on short-term finance to navigate seasonal and cost-related volatility.
Retail: Revenue Pressure Shifts Borrowing Behaviour
Cost-of-living constraints continue to erode consumer spending power, forcing retail operators to prioritise operational stability.
Business loan demand increased modestly (+0.8%), with strong growth in Tier 2 bank lending (+10.5%).
Asset finance demand dropped 7%, suggesting capital purchases are being postponed.
Insolvencies grew 3.9%, while payment delays spiked by 2.3 days—the largest increase in the market.
Outlook: Retailers are leaning on credit to cover immediate operational needs rather than long-term investments, leaving them exposed if consumer demand continues to soften.
Professional Services: Credit Growth with Underlying Risk
Despite a positive headline figure, the professional services sector has a complex risk profile.
Overall credit demand rose 5.8%, led by large businesses (+9.8%).
Insolvencies increased 26% year-on-year, although the rate (0.4% of active firms) remains below high-risk industries like construction and hospitality.
Payment delays increased modestly (+0.3 days).
Outlook: While higher credit quality SMEs are driving much of the sector’s borrowing, payment delays and insolvency growth point to stress in smaller operators.
SME Lending Trends: Cautious Recovery with High Credit Shopping Rates
SME credit demand was largely flat (+0.4%), with Victoria underperforming (-3%) and South Australia leading growth. High-risk SMEs—those with credit scores under 600—are increasingly shopping around for credit, with one in two making multiple loan enquiries within 30 days.
In construction SMEs, three out of five high-risk borrowers are credit shopping, 25% more than last year. Hospitality SMEs also showed high multi-lender activity, averaging 2.2 enquiries each over the past year.
Business Entry and Exit Dynamics: A Slowing Market
The pace of new business formation fell 9% in FY25, with the sharpest declines in:
Professional Services (-42%)
Hospitality (-20%)
Construction (-13%)
At the same time, company exits rose 12% year-on-year, particularly in Construction (+13.8%), Retail (+13.5%), and Hospitality (+10.6%). This combination has slowed the growth of credit-active entities to 3.1%, less than half the rate recorded in FY24.
Credit Shopping Behaviour: Rate Cuts Spark Competition
Following the RBA’s February 2025 rate cut, credit shopping activity among high-risk borrowers surged—from 39% of enquiries in February to 49% in March.
Construction and Hospitality lead the market in high-risk credit shopping (51% and 39% respectively).
Large businesses have reduced their multi-lender enquiries, while SMEs—particularly in high-risk categories—are shopping around more aggressively.
The Q2 2025 data reflects an economy where credit demand is growing, but for mixed reasons. While some businesses are seizing opportunities created by lower rates and stabilising inflation, many are borrowing to keep operations afloat. Insolvency rates are climbing, particularly in sectors most sensitive to consumer spending and cost inflation.
For lenders, this environment reinforces the need for robust risk assessment, flexible lending structures, and a deep understanding of sector-specific pressures. For borrowers, it underscores the importance of aligning funding strategies with realistic cash flow forecasts and market conditions.
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