High‑risk small businesses are stepping up their hunt for funding even as overall SME credit demand falls, according to Equifax’s latest Business Market Pulse for Q1 2026, as the Middle East conflict pushes up costs, uncertainty, and supply chain disruption across Australian businesses.
Equifax data shows SME credit enquiries fell 7% year‑on‑year in the March quarter, while overall business credit demand edged down 0.4%. Business loan demand was broadly flat at 0.8%, trade credit applications fell 11.9%, and asset finance bucked the trend with 3.1% growth.
Beneath those headline numbers, Equifax reports a stark split in behaviour. High‑risk SMEs are now making multiple approaches to lenders at a rate 2.9 times higher than low‑risk counterparts, with credit shopping among sub‑prime borrowers (scores 301–600) lifting to 33% versus just 7% for low‑risk entities.
Equifax commercial general manager Brad Walters (pictured) said the pattern has been building for several months.
“What we are seeing today is the culmination of a trend that has been building over the past few months and is now at its highest levels in the last eight months,” Walters said.
He added that business borrowers are increasingly polarised.
“We are seeing a divergence in how Australian businesses are approaching the credit market,” Walters said, noting that many low‑risk firms are sticking with existing banking relationships while higher‑risk SMEs cast a wider net.
According to the report, stronger‑quality applicants appear to be more selective about when and how they borrow, helping lift average business loan credit scores by four points over the year to early 2026. Walters said this suggests “a resilient and savvy group of SMEs remain active, prioritising strategic credit access despite broader market conditions.”
At the same time, sector data point to mounting cash flow strain in some industries. In construction, non‑company insolvencies rose 16% year‑on‑year in Q1 2026 and new ATO tax debt disclosures jumped 49%, indicating many smaller operators are prioritising operating expenses over tax obligations.
“This surge then appears to be further amplified by shifts in market conditions such as rising fuel costs, inflation, and interest rates," Walters said.
Walters said tax arrears are an important red flag for brokers and lenders.
“As observers of the credit market, we see rising tax debts as one of the key indicators of cash flow dynamics,” he said, warning that many smaller players in construction and logistics appear to be avoiding new debt altogether as the sector consolidates.
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