The Australian small and medium-sized enterprise (SME) sector is witnessing a significant shift in creditor enforcement dynamics, with non-bank lenders increasingly initiating court-based recovery actions.
This trend coincides with a rise in SME insolvencies, underscoring the evolving challenges within the business financing landscape.
Data from the Alares Credit Risk Insights report reveals that non-bank lenders have steadily escalated their court recoveries since 2019, reaching record or near-record levels. This increase accelerated through 2023 and 2024 and has remained elevated into 2025. In contrast, the big four banks peaked in their court activities in 2024 but have since reduced their enforcement actions, indicating a divergence in creditor behaviour.
Andrew Spring, a partner at Jirsch Sutherland, commented on this development, stating, "From an insolvency perspective, enforcement pressure hasn’t fallen - it has shifted. While the ATO remains the dominant source of court action, non-bank lenders are accounting for an increasing share of insolvency-related enforcement as the major banks step back."
This shift is occurring against a backdrop of sustained insolvency growth. After a brief dip in November 2025, insolvencies rose again in December, with year-on-year numbers once again exceeding 2024 levels. On an annual basis, insolvencies have followed a consistent upward trend since the COVID-era lows.
The Alares report also highlights that overall insolvency-related activity increased from around 30,000 businesses for much of 2025 to more than 32,000 businesses. Additionally, the Australian Taxation Office (ATO) continues to track well above historical levels in court recoveries, with direct court action against companies and individuals on the rise.
Patrick Schweizer, director of Alares, noted, "After COVID, both the big four banks and non-bank lenders steadily increased their court recoveries. However, the big banks did a U-turn in 2025 and started decreasing their court activity, whereas non-bank lenders continued to increase at an even higher rate."
For SMEs, this trend underscores the importance of maintaining robust financial health and open communication with creditors. As non-bank lenders become more assertive in their recovery actions, businesses must be proactive in managing their debts and seeking professional advice when facing financial difficulties. Understanding the terms and conditions of financing agreements and exploring alternative funding options can also help mitigate the risks associated with borrowing from non-bank lenders.
Please Note: If this information affects you, seek advice from a licensed professional.
