Cash flow driving SME credit demand

While SMEs are continuing to seek funding and growth opportunities, new data shows a growing focus on managing cash flow, supplier payments, and day-to-day expenses.

However, brokers are also reporting that businesses are still pursuing growth opportunities, moving from “defensive borrowing to strategic borrowing”.

According to SME lender Banjo Loans’ Banjo Barometer, the average loan size fell 20 per cent in the fourth quarter of the 2026 financial year (4Q26), contributing overall to a 5 per cent decline across the year.

Banjo also found that borrower-led loan application cancellations increased by 814 per cent, signalling increased market testing and lender comparison among businesses.

However, other lenders have reported that economic pressures are translating into increased demand, albeit for different types of finance.

SME lender Prospa recorded a 12.5 per cent quarterly increase in settlements, while its average deal size rose 5.7 per cent.

Paul Evans, national sales manager at Prospa said the lender's data pointed to demand continuing on a similar trajectory over the coming year.

“Intent backs that up, with 30 per cent of SMEs expecting to access external funds over the next 12 months,” he said.

“What's changed is the why. A wave of regulatory change has hit all at once, with Payday Super now in effect and the surcharging ban coming in October, on top of inflation that's still biting, with 46 per cent of SMEs having raised prices in the last three months.

“We're increasingly seeing businesses borrow to manage cash flow and get ahead of these shifts, not just to fund growth.”

Brokers report pressure

Brokers working with businesses have also flagged cash flow as a key pressure facing SMEs.

Matthew Chik, owner of MC Finance Group, told Broker Daily that amid a confluence of pressures from Payday Super, higher operating costs, and uncertainty around interest rates, he had seen a surge in demand for working capital facilities such as overdrafts, debtor finance, and business lines of credit.

“Many business owners are also looking to secure a little more funding than they immediately need, simply to create a buffer for unexpected events,” he said.

“Rather than borrowing purely for growth, businesses are increasingly focused on strengthening their liquidity and ensuring they have enough cash flow to navigate an uncertain economic environment.”

The cash flow trend was also being seen on the lender side, with Bizcap senior business development manager Nathan Evans saying businesses were becoming more proactive in managing cash flow.

The business lender said that around 70 per cent of its funding volume across Australia and New Zealand now comes through line of credit products, which it said reflected a shift towards businesses seeking ongoing access to capital rather than a one-off lump sum.

“Instead of waiting until they're under pressure, many are putting funding facilities in place ahead of time so they have capital available when it's needed,” said Nathan Evans, senior business development manager at Bizcap.

“That reflects a more strategic approach to finance, particularly in an environment where economic conditions remain unpredictable.”

Confidence wanes

Chik said that six to 12 months ago, funding conversations were more likely to centre on business expansions, acquisitions, and growth.

“Today, the conversation has shifted. Businesses are borrowing primarily to improve working capital, build cash reserves and provide a safety buffer against ongoing economic uncertainty,” he said.

“Overall, business confidence has softened noticeably.”

Indeed, National Australia Bank’s Business Survey has shown that business confidence has bounced back from record lows earlier in the year but remains muted.

Prospa has also recorded a fall in sentiment, with its SME Confidence Index dropping 10 percentage points over the quarter, from 70 per cent to 60 per cent.

Chik added that some of the biggest changes in credit behaviour were occurring across consumer-facing industries, particularly retail, cafes, restaurants, and hospitality businesses.

“As consumer spending tightens, these businesses are feeling the effects through lower revenue, tighter margins and increased demand for working capital solutions to help manage day-to-day operations,” he said.

From defensive to strategic borrowing

Melissa Ashcroft, director of AAA Financial Group, also flagged cash flow pressure as a key issue.

However, she said the businesses she was working with had begun to adjust to the higher interest rate environment and were looking for fresh opportunities despite the challenges.

“Today, we’re seeing a shift from defensive borrowing to strategic borrowing,” she said.

“Businesses have adjusted to the interest rate environment and are now looking at growth opportunities again.”

Ashcroft said that she was seeing increased demand not only for working capital facilities but also for unsecured business lending, commercial property refinancing, and private credit solutions.

“They’re funding acquisitions, purchasing commercial property, investing in equipment, expanding operations and securing working capital to support growth,” Ashcroft said.

“We’re also seeing many successful family businesses reviewing capital structures that haven’t changed for years.

“Rather than just refinancing existing debt, they’re looking at how their balance sheet can support acquisitions, succession planning, business expansion or investment opportunities.”

Bizcap's Evans similarly said businesses had not stopped investing in growth, but were borrowing for a broader range of purposes.

“Working capital remains a major driver, but funding is increasingly being used to manage tax obligations, purchase inventory ahead of peak trading periods, invest in equipment, cover payroll and bridge timing gaps between supplier payments and customer receipts,” he said.

“Importantly, business owners haven't stopped investing in growth. They're still expanding, hiring and pursuing new opportunities.”

As businesses look to take advantage of new opportunities, Ashcroft said that speed and flexibility were moving up the agenda in funding decisions, rather than focusing solely on price.

“Rather than asking, ‘What’s the cheapest loan?’, clients are asking, ‘What’s the right capital solution to achieve my objective?’” Ashcroft said.

Location matters

The shift towards consolidation and cash flow management is not playing out evenly across all businesses and regions either.

Western Sydney’s commercial lending market, for instance, has grown by 11.1 per cent over the past year, according to NAB’s latest Greater Western Sydney Horizons Report, outpacing the rest of the state.

Mansour Soltani, director of Soren Financial, said he had seen businesses eyeing their next phase of growth while continuing to keep a close watch on cash flow.

“A lot of the demand we’re seeing is not necessarily from businesses taking big risks, but from owners who have strong cash flow and are looking at opportunities while competitors are sitting on the sidelines,” he said.

“That might be purchasing their own premises, expanding operations, upgrading equipment, or acquiring another business. Industrial and trade-based businesses continue to be active, especially businesses linked to construction, manufacturing, logistics and essential services.

“Western Sydney has a strong base of family-owned businesses, and many operators in these sectors are still investing for the long term.”

Size also matters.

Prospa found that newer and larger businesses are the most active borrowers, with those turning over $1m or more leading in intent at 51 per cent, compared with 24 per cent among sole traders.

[Related: How Payday Super could trigger ‘structural shift’ in SME lending]

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