SME Finance in Australia Is Quietly Being Redrawn
Small and medium businesses in Australia are operating in a very different finance landscape to just a few years ago. Interest rates have eased a little from their peak, but access to capital is still uneven. At the same time, non-bank and fintech lenders have moved from the fringes into the mainstream, and regulators have updated the rules around property-backed lending.
This article looks at the key shifts shaping SME finance right now, and what they mean for business owners making funding decisions.
1. Rate cuts have taken the edge off, but money is still not “cheap”
The Reserve Bank has delivered a series of rate cuts this year, bringing the cash rate down to the mid–3% range. That is a relief compared with the peak of the tightening cycle, but it is still well above the ultra-low levels businesses became used to during the pandemic years.
Recent analysis from the RBA highlights that smaller businesses still tend to face higher borrowing costs than large corporates, even though the gap has narrowed somewhat. In other words, funding pressures have eased slightly, but most SMEs are not experiencing anything like a “cheap money” environment.
For many owners, this is showing up as:
- Higher interest costs on variable-rate facilities and overdrafts.
- More scrutiny on new applications and refinances.
- Greater emphasis on demonstrating resilient cash flow before a lender will commit.
2. Non-bank lenders are no longer niche – they’re normal
One of the most striking developments has been the rise of non-bank and alternative lenders in the SME space. Multiple waves of ScotPac’s SME Growth Index have tracked a sharp change in attitudes: more than half of Australian SMEs now say they intend to use a non-bank lender for new business investment, compared with single-digit percentages a decade ago.
Other research finds that around 90% of SMEs are at least open to partnering with a non-bank. Speed and ease of dealing are consistently cited as major reasons for this shift.
In practice, non-bank and fintech providers are increasingly used for:
- Working capital and short-term cash flow solutions.
- Invoice finance and debtor funding.
- Equipment and vehicle purchases.
- Top-up or “gap” funding where bank appetite is limited.
RBA liaison and industry commentary also point to a rising share of SME lending being written by non-banks, particularly for smaller loan sizes and for facilities secured by non-physical assets. Competition from these players is a key reason banks are being pushed to sharpen their offerings and improve turnaround times.
3. Banks remain central – but they’re more selective
Despite the growth of alternative lenders, the major banks and regional banks still hold the bulk of SME loans by value. RBA analysis and lender commentary suggest that banks remain willing to support viable small businesses, but are applying closer scrutiny to how loans will be serviced, and under what conditions.
For SME borrowers, the bank side of the market is characterised by:
- Stronger focus on serviceability and resilience in different economic scenarios.
- Preference for established businesses with a track record and up-to-date financials.
- More questions around sector risk, concentration of key customers and exposure to cost shocks.
Smaller and younger firms, or those with more volatile earnings, continue to report more friction in dealing with mainstream banks, and often face higher interest margins than larger corporates.
4. APRA’s clarification on commercial property lending matters for SMEs too
Another important development has come from the prudential regulator. In February, APRA issued a letter to authorised deposit-taking institutions clarifying its expectations around commercial property lending, particularly in relation to pre-sales requirements for construction and development finance.
Commentary on the letter makes it clear that a blanket requirement for 100% pre-sales on new apartment projects was never intended to be a hard rule. Instead, APRA is emphasising that banks should apply robust risk assessments that take into account factors like project quality, market conditions and the developer’s track record.
While this is primarily a commercial property story, it has implications for SMEs that are:
- Developing or investing in commercial or residential projects through their business structures.
- Relying on development activity in related industries (construction, trades, building supplies, professional services).
- Using commercial property as security for their broader business banking arrangements.
More nuanced regulatory guidance may, over time, support a more flexible approach to viable projects, though banks remain cautious in sectors that have seen price volatility or settlement risk.
5. SMEs are under pressure – and many need fresh funding
Surveys of business owners show a clear tension: many SMEs are optimistic about long-term prospects, but feel exposed in the near term. Recent ScotPac research found that the vast majority of SMEs expect to need new funding in the near future, and a significant minority say that losing a major client or supplier could put them at risk of insolvency.
At the same time, NAB’s SME Business Insights report highlights that cash flow remains the single biggest concern for small and medium businesses, ahead of issues such as regulation and staffing in many sectors.
Common pressure points include:
- Higher wage, energy and input costs.
- More assertive tax collection activity, including payment plans with the ATO.
- Longer payment terms from larger customers.
- Difficulty passing on cost increases in full.
These factors are driving demand for flexible working-capital tools – but also increase the risk that some businesses may lean too heavily on short-term, higher-cost facilities if they don’t have a clear funding plan.
6. What this shifting landscape means for SME finance decisions
Putting these threads together, a few themes stand out for Australian SMEs:
- Choice has increased, but simplicity has not. There are more ways to fund a business than ever before – from traditional term loans and overdrafts to invoice finance, revenue-based loans and specialised equipment facilities. Understanding how each structure behaves over time is becoming more important than chasing a single headline rate.
- Non-bank lenders now play a structural role. For many businesses, especially those needing speed, short-term flexibility or funding against receivables, alternative lenders are no longer a last resort – they are part of the standard toolkit.
- Banks are focusing on cleaner, better-documented deals. Up-to-date financial statements, clear separation of business and personal spending, and a simple explanation of how a facility will be repaid are increasingly critical to securing bank support on reasonable terms.
- Regulation is nudging, not dictating, lending outcomes. APRA’s clarification on commercial property lending does not open the floodgates, but it does signal an appetite for more calibrated, risk-based assessments rather than blunt rules – important for SMEs with exposure to property or development activity.
- Cash-flow management and funding strategy are converging. With cash flow topping the list of worries for many owners, funding decisions are less about opportunistic borrowing and more about how each facility fits into the broader balance between resilience, growth and risk.
For business owners, the practical takeaway is that finance is becoming less about “Can I get a loan?” and more about “Which mix of structures and providers makes sense for what I’m trying to achieve?” Accountants, brokers and other advisers who see a range of lenders and products are likely to play a growing role in answering that question.
Common SME Questions About the Current Lending Environment
Are non-bank business loans a sign that my bank has said no?
Not necessarily. Many SMEs now use non-banks by choice, particularly for short-term cash-flow needs or invoice-backed funding, even while maintaining traditional facilities with a bank. The key is to understand the total cost, the term and how a non-bank product fits into your broader funding mix.
Is it getting easier or harder to get finance as a small business?
The picture is mixed. Surveys and RBA analysis suggest many SMEs still find access to bank finance challenging and face higher borrowing costs than larger firms. At the same time, competition from non-banks has expanded the range of options available. For some businesses, overall access has improved; for others, especially those under stress, it can feel harder.
What matters most to lenders right now?
Across both banks and non-banks, the consistent focus is on cash-flow serviceability, quality and timeliness of financial information, and a clear explanation of the purpose and exit strategy for any facility. Security remains important, but strong underlying cash flow and clean financials typically carry more weight than a single asset on its own.
