Australian SMEs Reduce Borrowing Amid Interest Rate Uncertainty

Data from non-bank lender Banjo Loans reveals that SME lending volumes declined by approximately 5% in the last quarter of 2025. This downturn followed a 14% increase in the September quarter, indicating a significant shift in borrowing behaviour as the year progressed.

Guy Callaghan, CEO of Banjo Loans, noted that after a strong spike in September and October, discussions about the cessation of rate cuts led to a subdued final two months for SME borrowing. This sentiment underscores the sensitivity of SMEs to monetary policy signals and their impact on business confidence.

The Reserve Bank of Australia's (RBA) decision to maintain the cash rate at 3.6% for the fourth consecutive month in December 2025 contributed to this cautious stance. While some lenders anticipated further rate hikes, others expected the RBA to hold steady, creating a climate of uncertainty that influenced SME financing decisions.

Despite a rebound in broader business sentiment, with Roy Morgan Business Confidence reaching its highest level in nine months in December, the outlook for SME borrowing remains mixed. The uneven softening across sectors such as retail, construction, and small-business credit conditions highlights the challenges that SMEs face in navigating the current economic landscape.

For SMEs, this environment necessitates a strategic approach to financing. Businesses must carefully assess their funding needs, considering both the potential benefits of securing capital for growth and the risks associated with borrowing in a fluctuating interest rate climate.

In conclusion, the decline in SME borrowing amid interest rate uncertainty underscores the importance of economic stability in fostering business confidence. As SMEs continue to play a vital role in Australia's economy, ensuring access to affordable and predictable financing options will be crucial for their sustained growth and resilience.