Recent data indicates a significant shift in the enforcement landscape affecting Australian small and medium-sized enterprises (SMEs).
Non-bank lenders have markedly increased their court-based recovery actions, coinciding with a rise in SME insolvencies.
This trend emerges as major banks reduce their enforcement activities, highlighting a changing dynamic in creditor behaviour.
According to the latest Alares Credit Risk Insights report, non-bank lenders have steadily escalated court recoveries since 2019, reaching record levels by 2025. This increase accelerated through 2023 and 2024 and has remained elevated into 2025. In contrast, the big four banks peaked in their court actions in 2024 but have since eased their activities, indicating a clear divergence in enforcement strategies.
Andrew Spring, a partner at Jirsch Sutherland, observes that while overall enforcement pressure hasn't decreased, it has shifted from traditional banks to non-bank lenders. This shift suggests that as banks pull back on SME lending, more businesses are turning to alternative funding sources. However, these non-bank lenders are now more aggressively pursuing court actions to recover debts, adding pressure to already struggling SMEs.
The rise in business failures aligns with observations that insolvencies are rebounding from unusually low pandemic-era levels. Factors such as the withdrawal of support measures, resumption of Australian Taxation Office (ATO) enforcement, higher operational costs, weak demand, and elevated interest rates contribute to this trend.
Insolvency rates have continued to climb, with December 2025 figures exceeding those of 2024 and showing a consistent upward trend since the COVID-era lows. The Alares report highlights that over 32,000 businesses faced insolvency-related activity in late 2025, up from around 30,000 earlier in the year. The ATO remains the dominant source of court actions, with continued high levels of recovery efforts against companies and individuals.
Patrick Schweizer, director of Alares, notes a structural shift in lending behaviour since COVID-19. He suggests that major banks are now heavily focused on low-risk lending, particularly residential mortgages and blue-chip corporates. This focus has led SMEs to seek financing from non-bank lenders, who, in turn, are more assertive in their recovery actions.
For SME owners, this evolving landscape underscores the importance of understanding the terms and conditions associated with non-bank lending. While these lenders can provide essential funding, especially when traditional banks are less accessible, the potential for aggressive recovery actions necessitates careful consideration and proactive financial management.
In conclusion, the increase in court actions by non-bank lenders amid rising SME insolvencies reflects a significant shift in the Australian financial landscape. SMEs must navigate this environment with caution, ensuring they are well-informed and prepared to manage the challenges associated with alternative financing options.
Please Note: If this information affects you, seek advice from a licensed professional.
