Australian SMEs are showing signs of cautious optimism heading into the second quarter of this financial year, with latest data from leading non-bank lender Banjo Loans revealing a 14% lift in loan applications across the July – September quarter.
This follows a 7% rise in the previous three months, suggesting that while sentiment is improving, smaller businesses remain wary amid ongoing questions about serviceability, according to the latest Banjo Barometer report.
Despite the positive momentum, overall loan velocity continues to slow, the report finds, with the increase in borrowing activity led by larger more established SME businesses.
The Barometer’s findings also show that SMEs turning over $10-20 million annually lifted borrowing volumes by 76% during the quarter and 71% over the past 12 months.
Banjo Loans CEO Guy Callaghan says the latest results reflect a small business sector that’s moving forward but not racing ahead.
“We’re seeing a cautious kind of confidence. Larger SMEs are driving growth, but for smaller operators, the focus remains on maintaining stability. It’s not a surge of optimism, rather a steady, thoughtful progress,” Callaghan said.
The value of loans drawn climbed 9% in Q1 FY26 and 11% year-on-year, reaching its highest level in three years. This suggests that while overall applications remain flat (down 1% on the same quarter last year), businesses that are borrowing are taking out larger loans.
Across industries, momentum was mixed. Applications rose sharply in Administrative and Support Services (+110%), Manufacturing (+61%), Accommodation and Food Services (+45%) and Transport, Postal and Warehousing (+43%), while declines were recorded across Financial and Insurance Services (-27%), Wholesale Trade (-59%) and Professional, Scientific and Technical Services (-63%).
Loan quality weakened over the quarter, with Banjo recording a 40% increase in cancelled applications and a 26% rise in declines. Serviceability challenges were the main driver behind a 42% surge in declined loans – a two-year high, while cancellations linked to missing or incomplete paperwork lifted 39%.
Despite these findings, businesses managing existing loans are showing financial discipline.
Arrears over 30 days fell 32% to a multi-year low. The only sectors to record a deterioration were Retail Trade and Transport, Postal and Warehousing, with the latter sustaining arrears far higher than previous years.
Regionally, results were mixed. Loan applications fell sharply in New South Wales (-48%) and Victoria (-30%), reaching a two-year low, while Western Australia was down 25%. In contrast, Queensland recorded a 21% increase in borrowing, and South Australia surged 300%, continuing its pattern of strong first-quarter activity.
Callaghan says while a “tough it out” attitude remains a dominant theme among SMEs, caution is equally dominant.
“I’ve said it before – SMEs are a resilient bunch, but our data shows we’re not seeing widespread confidence in the current economic climate. SMEs are navigating this climate with care, not ambition,” Callaghan said.
“Without meaningful improvement to economic fundamentals, whether that’s rate relief, consumer confidence or policy support, we’re likely to see this subdued pattern continue.”
Key Highlights from the Banjo Barometer – Q1 FY26
- 14% increase in SME loan applications in Q1 FY26 (up 7% on the previous quarter)
- Loan values up 9% for the quarter and 11% year-on-year – highest in three years
- Borrowing led by SMEs with $10–20 million turnover, up 76% in Q1 and 71% annually
- Loan cancellations up 40% and declines up 26%, driven by serviceability (+42%) and documentation (+39%) issues
- Arrears down 32% to a multi-year low
- Regional performance was mixed:
- SA loan applications soared 300%
- QLD loans were up 21%
- NSW saw a drop 48%
- VIC fell 30%
- WA loans declined 25%
