SMEs suffering as Australia's economy drags: Banjo Loans’ latest Barometer highlights lowest loan applications in FY25

Australia’s small and medium-sized enterprises (SMEs) are grappling with an increasingly tough economic climate, with Banjo Loans‘ latest Barometer data highlighting continued anxiety within the sector.

SME loan applications and borrowing volumes continue to decline in the face of economic uncertainty, according to the newly released Banjo Barometer report, with the March 2025 quarter showing loan applications for SMEs at their lowest point this financial year in a clear indication of businesses’ reluctance to take on additional debt.

While sectors like Administrative and Support Services (10%) and Real Estate (11%) have shown some resilience, other industries including Food Services (-26%), Education (-57%), Health Care (-40%) and Mining (-38%) saw significant borrowing declines.

Nationally loans were down across the board, except in the Northern Territory, which saw its second quarterly borrowing increase in a row.

This quarter also saw SMEs impacted by the removal of key financial incentives, such as the $20,000 instant asset write-off, which was previously available to small businesses.

The write-off allowed businesses to immediately deduct the cost of assets valued at up to $20,000, providing crucial financial relief and stimulating investment. With its removal, many SMEs will find it harder to offset the costs of upgrading equipment and investing in their operations, further compounding the difficulties they face.

Banjo Loans CEO Guy Callaghan said that while some regions and sectors show slight growth, the overall mood among SMEs remains one of caution.

“Despite some resilience in Administrative Industries and Real Estate, and a bit of light at the end of the tunnel for the Retail industry, our Barometer report shows that SME businesses are currently reluctant to borrow,” said Callaghan.

“SMEs are a resilient bunch, but the combination of economic uncertainties, the reduction in asset write-offs and the broader slowdown in loan activity across the country shows the ongoing pressures SMEs are under.”

Key Insights from the Latest Banjo Barometer:

Declining Loan Applications: Loan applications have dropped to their lowest levels this financial year, reflecting the hesitancy among businesses to take on more debt in an uncertain economy.

Cautious Smaller Businesses: SMEs with annual revenues under $2 million remain particularly cautious about borrowing, with many businesses still burdened by ATO debts and rising operational costs. The removal of the $20,000 instant asset write-off has made it even harder for these businesses to reinvest and expand, further dampening their borrowing appetite.

Increased Borrowing for SMEs with $10-$20m revenue: Despite a 22% decline across SME business borrowing, among SME businesses with $10-$20m annual revenue, there was a 6% increase in borrowing in Q3.

Rising Arrears: Across industry, arrears increased with 20% of SME borrowers now in arrears. Healthcare bucked the arrears trend, with a 100% payment coverage in Q3.

Sector-Specific Trends:

Retail: Retail businesses have continued their trajectory of slow recovery, with loan applications increasing by 8% in Q3.

Education and Training: The biggest drop in borrowing power for Q3 was in Education and Training, with applications down 57% from Q2.

Healthcare: Despite a 14% increase in loan applications in Q2, healthcare suffered significantly in Q3, with SME borrowing down by 40% in Q3.

The Banjo Barometer data from Q3 shows that the economic and financial challenges facing SMEs are continuing to escalate, with Callaghan highlighting a return to circumspection.

“Loan applications have dropped to their lowest level this financial year, underscoring the hesitancy among businesses to take on more debt in such uncertain times,” Callaghan said.

“While sectors like Retail show resilience, others, such as healthcare, education, transport, postal and warehousing are struggling.”

Callaghan also noted that lenders still need to keep their eye on arrears, with loans past 30 days due increasing slightly, signalling mounting financial strain.

“The removal of the $20,000 instant asset write-off in the latest Federal Budget has only added to the pressure, making it harder for businesses to reinvest and expand. Although ATO debt is less of a factor in declined applications, many businesses are still finding it difficult to stay afloat,” Callaghan said.

Callaghan said the need for immediate, targeted financial support is clear, adding, “Without the right policy adjustments, SMEs will continue to face a prolonged downturn. We must act quickly to help these businesses regain stability, restore confidence and drive recovery. Time is running out for many SMEs, and focused intervention is crucial to avoid further financial strain.”