SMEs Are Borrowing More Carefully as Cash Flow Pressures Bite

The shift is important for business owners because it suggests funding demand has not disappeared, but the purpose of borrowing is changing. In stronger trading conditions, a business loan may be used to open another site, buy equipment or hire ahead of growth. In the current environment, many SMEs are borrowing to protect working capital, smooth payment timing and keep commitments on track.

Banjo’s Q4 FY26 data showed average loan size fell 20 per cent over the quarter and 5 per cent across the financial year. The reduction was even sharper among businesses generating more than $10 million in revenue, where average loan size reportedly declined 37 per cent. That points to a broader discipline around debt levels, not just pressure among smaller operators.

Another notable signal was the sharp rise in borrower-led cancellations after conditional approval. This suggests some businesses are testing available finance, then pausing, reducing or walking away once they reassess their requirements or compare lender options. For SMEs, that can be a sensible step, provided the decision is based on clear forecasts rather than uncertainty alone.

The encouraging part of the data is that arrears remained relatively stable. In practical terms, many SMEs are still managing existing commitments despite higher costs, cautious consumers and tighter lending settings. However, stable arrears should not be read as a reason to delay planning. If finance is being used to plug recurring shortfalls rather than bridge a temporary timing gap, owners need to understand whether the underlying cash cycle is sustainable.

This story also extends the recent warning signs around commercial card debt and short-term credit usage. When businesses move from growth borrowing to defensive borrowing, loan structure becomes more important. A smaller facility may feel safer, but the wrong term, repayment frequency or fee structure can still create pressure.

Before applying, SMEs should revisit three basics: what the funds will be used for, how repayments will be met under conservative revenue assumptions, and whether the facility matches the cash flow problem being solved. Modelling repayment scenarios with a business loan calculator can help owners separate useful working capital support from debt that simply delays a deeper issue.