Asset finance volumes jumped 41% in Q3 2025 whilst working capital enquiries turned negative by year’s end, according to Valiant Finance’s Alex Molloy.
What’s happening: Asset finance volumes surged by 41% in Q3 and 33% in Q4 of 2025, driven by rate cuts and the Instant Asset Write-Off extension.
Why this matters: The diverging trends reveal how Australian SMEs are adapting to economic uncertainty by prioritising long-term productivity investments whilst pulling back on short-term debt.
Asset finance has emerged as a clear growth story heading into 2026, with businesses continuing to invest in essential equipment despite broader economic headwinds.
According to new market data from Valiant Finance, funded asset finance volumes surged 41% in Q3 and 33% in Q4 of 2025, whilst enquiries grew steadily between 9% and 14% year on year, signalling sustained confidence in long-term productivity investments.
“In a reduced rate environment, we saw SMEs prioritise investments that directly support revenue and efficiency,” said Alex Molloy, Co-Founder of Valiant Finance.
“Equipment, vehicles and technology are no longer ‘nice to haves’—they’re critical to staying competitive, and businesses are willing to finance them when the numbers stack up.”
The growth came after the Reserve Bank cut rates early in 2025 and the government extended the Instant Asset Write-Off scheme, creating favourable conditions for capital investment.
Competitive pricing emerges
Lender competition intensified throughout 2025, placing downward pressure on pricing across the asset finance market.
Average asset finance rates fell by more than one percentage point between early 2024 and late 2025, outpacing movements in the RBA cash rate as lenders moved aggressively to secure market share ahead of expected rate cuts.
“Lenders have been sharpening their pencils,” Molloy said. “We’re seeing pricing improve faster than many SMEs expect, which is creating real opportunities for businesses that may have delayed purchases over the past 12 to 18 months.”
The competitive environment reflects broader shifts in SME lending, with businesses increasingly seeking flexible financing options beyond traditional bank products.
According to the Reserve Bank’s October 2025 bulletin on small business conditions, broker origination has risen substantially in recent years and accounts for a larger share of asset finance loans relative to other business lending products. Greater broker activity has supported lender competition by helping match potential borrowers with suitable financing terms.
Working capital caution grows
Whilst asset finance thrived, a different picture emerged in working capital lending.
Working capital remained the largest segment by funded volume, delivering strong quarterly growth of between 31% and 41% across 2025. However, enquiry volumes softened as the year progressed, turning negative by Q4.
“This pullback in working capital enquiries tells us SMEs are being more cautious,” Molloy said. “Businesses are still borrowing, but given consumer sentiment deteriorated sharply in the final months of 2025, and inflation and interest rate coverage turned decisively negative, they’re wary about taking on debt in these conditions.”
The shift aligns with broader trends in SME cash flow management, with businesses facing continued pressure from rising costs and payment delays.
Research from late 2025 showed that 73% of Australian SMEs were reporting cash flow constraints heading into the 2026 financial year, according to industry data. This has prompted many businesses to adopt a more conservative approach to short-term borrowing.
Trading history crucial
Lenders have become increasingly focused on business resilience and trading history when assessing working capital applications.
“Trading history matters more than ever,” Molloy said. “Lenders want to see resilience through tougher conditions, and businesses that can demonstrate consistency are being rewarded with better outcomes.”
Valiant’s data showed that more than 80% of settled working capital funding went to businesses operating for over two years, with the strongest conversion rates seen among firms aged two to five years. Start-ups under one year old continued to enquire at high levels but converted at significantly lower rates.
Sector performance varied across the economy. Construction continued to generate the highest volume of lending opportunities, whilst retail and hospitality recorded the strongest conversion rates, reflecting both stable demand and strong lender appetite.
Looking ahead, Valiant expects strong competition among lenders into 2026, with more fluctuations in rates outside of RBA rate decisions as lenders try to stay ahead of the macro environment.
Asset finance is well positioned for continued growth as deferred investment demand is released, whilst working capital lending is likely to continue favouring established businesses with clear funding use cases.
“For SMEs, 2026 will be about being strategic,” Molloy concluded. “Those who understand their numbers and engage early will find lenders more open and competitive than they’ve been in years.”
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