Q2 2025 Commercial Credit Report: Business Loans Surge Amid Rising Insolvency Pressures
Australia’s commercial credit market is sending mixed signals in Q2 2025. While total credit demand rose 5.2% during the quarter — driven largely by a 6.0% surge in business loan activity — the underlying data reveals an economy balancing cautious investment with rising insolvency pressures.
Beneath the headline growth lies a more complex story: sectoral divergence, persistent cost stress, moderating consumer demand, and a growing reliance on non-bank lenders to manage liquidity. For some industries, credit is fuelling expansion. For others, it is providing a lifeline.
According to Kalpi Prasad, Managing Director at Renown Lending, the data highlights a structural shift in borrower behaviour.
“The increase in business loan demand isn’t purely expansionary,” Prasad notes. “Many SMEs are accessing funding to stabilise cash flow rather than accelerate growth. The rise in non-bank lending activity reflects a market seeking flexibility in a tighter risk environment.”
National Overview: Lending Growth in a Cautious Economy
Business loans remain the primary growth engine across Australia’s commercial lending landscape. Enquiry volumes rose across all major lender categories:
Big Four banks: +9%
Tier 2 banks: +11.5%
Non-bank lenders: +12%
This broad-based growth reflects two distinct borrower profiles emerging in the market:
Capital-intensive sectors investing selectively in core operations
Consumer-reliant industries leveraging credit to maintain liquidity and meet operational costs
Asset finance, by contrast, moderated despite earlier interest rate cuts. Enquiries increased just 1.4% as businesses deferred equipment and vehicle purchases, prioritising working capital preservation over expansion.
Trade credit enquiries rose modestly (+0.9%), but performance varied significantly by region. Queensland (+3.8%) and regional markets (+4.1%) showed resilience, while Victoria (-2.6%) and New South Wales (-0.6%) recorded contractions.
Credit quality trends also diverged. Business loan applications maintained relatively strong credit profiles, with average scores sitting 10 points higher than three years ago. However, asset finance and trade credit enquiries showed a higher proportion of lower-score borrowers, indicating increased participation from financially stretched businesses.
Sector-by-Sector Analysis
Construction: Borrowing to Survive
Construction remains the most stressed major sector.
Year-to-date insolvencies reached 1,768 — impacting 1.4% of all credit-active construction firms, the highest proportion across industries. Payment delays remain more than double the market average, although they have eased slightly from late-2023 peaks.
Business loan demand rose 4.3%, led by non-bank lenders (+10.3%) and Tier 2 banks (+6.5%), suggesting builders are prioritising funding sources offering flexible structures.
Asset finance demand fell 4.6%, with SME demand declining 8.7%, reinforcing the view that capital investment is being deferred.
Rising material costs, fixed-price contract pressures and margin compression continue to push firms toward short-term liquidity solutions rather than expansionary borrowing.
Hospitality: The Highest Insolvency Ratio in the Market
Hospitality is absorbing the cumulative impact of subdued discretionary spending, rising wages and operating cost inflation.
Insolvencies surged 27.8% year-on-year, representing 3.1% of all active hospitality businesses — the highest proportion in any sector.
Business loan demand rose 2.2%, particularly among regional lenders (+15%), as operators sought survival funding. Trade credit enquiries declined 5%, with many businesses consolidating liabilities into structured loan facilities.
Payment delays increased by an average of two days, reflecting worsening cash flow cycles.
With consumer spending under continued pressure, short-term funding dependence is likely to remain elevated.
Retail: Liquidity Over Expansion
Retail operators continue to navigate cost-of-living constraints and cautious consumer behaviour.
Business loan demand increased modestly (+0.8%), supported by Tier 2 banks (+10.5%). However, asset finance enquiries dropped 7%, signalling postponed capital investment.
Insolvencies rose 3.9%, while payment delays increased by 2.3 days — the sharpest deterioration across major industries.
Retailers appear increasingly focused on preserving operational stability rather than committing to long-term growth initiatives.
Professional Services: Growth with Emerging Risk Signals
Professional services recorded overall credit growth of 5.8%, driven largely by larger enterprises (+9.8%).
However, insolvencies rose 26% year-on-year. While the insolvency rate remains relatively low at 0.4% of active firms, rising payment delays (+0.3 days) suggest pressure among smaller operators.
The sector’s headline resilience masks a widening performance gap between well-capitalised firms and smaller SMEs operating with thinner margins.
SME Lending Trends: Rising Credit Shopping Behaviour
SME credit demand remained largely flat (+0.4%) nationally, with notable regional divergence. Victoria underperformed (-3%), while South Australia led growth.
High-risk SMEs — defined as those with credit scores under 600 — are increasingly “credit shopping.” One in two high-risk borrowers made multiple loan enquiries within 30 days.
In construction SMEs, three out of five high-risk borrowers are now credit shopping — 25% more than a year earlier. Hospitality SMEs averaged 2.2 loan enquiries each over the past year.
This heightened competition among lenders has intensified following recent monetary policy shifts.
Business Formation Slows as Exits Rise
New business formation fell 9% in FY25, with sharp 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%).
As a result, growth in credit-active entities slowed to 3.1% — less than half the expansion rate recorded in FY24.
Rate Cuts and Competitive Lending Dynamics
Following the RBA’s February 2025 rate cut, high-risk credit shopping surged from 39% of enquiries in February to 49% in March.
Construction and Hospitality now lead the market in high-risk multi-lender enquiries (51% and 39% respectively).
While larger corporates have reduced multi-lender activity, SMEs — particularly those under financial strain — are increasingly seeking competitive terms across multiple funding channels.
Market Outlook: Growth with Heightened Risk Awareness
The Q2 2025 data reflects an economy where credit demand is expanding, but for divergent reasons. Lower interest rates and stabilising inflation have supported selective investment. At the same time, insolvency rates continue to rise across consumer-sensitive sectors.
For lenders, this environment reinforces the importance of disciplined credit assessment, flexible lending frameworks and sector-specific risk analysis.
For borrowers, strategic funding alignment — grounded in realistic cash flow modelling and contingency planning — will be critical in navigating the evolving credit cycle.
As Australia’s commercial landscape adjusts to moderating growth and persistent structural pressures, the balance between opportunity and risk will define lending performance in the quarters ahead.
