Equifax’s Q1 2026 report reveals high-risk SMEs are credit shopping at 2.9 times the rate of low-risk counterparts, reaching an eight-month peak.
The latest Equifax Business Market Pulse for Q1 2026 reveals signs that Australian businesses have been responding to an ever-changing environment, encompassing rate rises and rising energy and fuel costs.
Australian credit demand may have reached a point of surface-level stability in the first quarter of 2026, with a marginal -0.4% decrease year-on-year. However, this stability differs from the second half of last year where credit was expanding, notably across business loans. Below the surface, Equifax data reveals nuanced differences in how businesses are navigating current economic pressures.
Surface stability masks divergence
“The Equifax Business Market Pulse for Q1 2026 shows growth in business loans and trade credit running below trend. More positively, asset finance has retained some resilience. This resilience is especially important given that business investment spending is a key component underpinning many economic growth forecasts. Some industries are reporting rising trade payment days and rising tax debt. A gap has also emerged between larger companies compared to Small & Medium sized Enterprises (SMEs),” observed Brad Walters, General Manager, Commercial at Equifax.
The data shows business loan demand flattened at +0.8%, trade credit demand decreased by -11.9%, asset finance demand was up by +3.1%, and SME credit demand decreased by -7%.
Credit shopping surge explained
A behavioural gap has emerged in the search for credit, with high-risk SMEs now credit shopping, making multiple enquiries to different lenders within a 30-day period, at a rate 2.9 times higher than their low-risk counterparts.
This surge in activity among sub-prime borrowers comes as overall SME demand contracted by -7.0% year-on-year in Q1 2026, as this cohort of borrowers scaled back on enquiries in response to interest rate increases and inflation impacts. Coupled with this are also some signs of a tightening in lending conditions, with some firms reporting that finance became more difficult to obtain over the quarter.
The Equifax Business Market Pulse shows that whilst credit shopping among low and medium-risk segments has shrunk, activity among high-risk SMEs (scores of 301-600) surged to 33% in Q1 2026, compared to just 7% for low-risk entities.
Brad Walters, General Manager, Commercial at Equifax, said 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.
“We are seeing a divergence in how Australian businesses are approaching the credit market. For the majority of stable, low-risk entities, there is a sense of ‘rate resignation’, they are opting for the speed and certainty of known lending relationships. In contrast, high-risk SMEs seem to be in a state of accelerated credit shopping, having to cast a much wider approval net, often applying to four or five lenders to find an approval,” Walters said.
“This surge then appears to be further amplified by shifts in market conditions such as rising fuel costs, inflation and interest rates.”
“Given the integral role small and medium enterprises play in the Australian economy, these developments within the SME sector are noteworthy. SMBs represent a significant portion of economic output and employment so shifts in this cohort are important for understanding broader economic trends.”
Application quality rises overall
Whilst there has been an elevation in credit shopping behaviours across sub-prime applicants, the relative proportion of higher-risk applicants remains similar to previous periods. However, the Equifax Business Market Pulse identified a slight improvement in the credit quality of higher-scoring applicants, which is supporting a small increase in the average credit quality across the entire applicant pool.
Building on the three-year highs established in late 2025, average business loan credit scores rose by 4 points year-on-year, reaching the highest levels seen in early two years.
“This SME cohort continues to demonstrate resilience, maintaining higher credit scores, on average, relative to larger businesses. This suggests that whilst high-risk SME segments have scaled back their activity, a resilient and savvy group of SMEs remain active, prioritising strategic credit access despite broader market conditions,” Walters said.
“The fact that average scores are still exhibiting relatively sound levels of credit quality on average, may partly reflect a narrowed field of applicants, but it also indicates that well-managed businesses are successfully adjusting to a ‘new normal’.”
“Following the resilience we saw in the mid-market last year, what we are potentially seeing here are businesses becoming even more selective about when, and how they borrow to ensure their balance sheets can withstand ongoing changes.”
The construction and logistics sectors both continue to demonstrate signs of pressure amid market conditions.
In construction, whilst national company insolvency levels in the sector showed a small decline (or improvement) of -6.4%, business insolvencies (non-companies) continued to climb 16% year-on-year in Q1 2026. New ATO tax debt disclosures spiked by 49%, which may indicate significant underlying cashflow pressure as small builders prioritise operational costs over tax obligations. It can also suggest the importance of diesel prices in the construction sector.
Logistics faces compounding challenges
In logistics, company insolvencies remain 3.7 times higher than 2022 levels, whilst business insolvencies increased 27% year-on-year in Q1 2026. Large logistics operators are increasingly leaning into trade credit (+26% year-on-year) to manage immediate liquidity and fuel price volatility. Whilst ATO Tax Debt Disclosures were only up 11% year-on-year for the quarter, there was an observed late-stage spike, with the number of new tax debt disclosures for transport and logistics businesses in the month of March up by 97.7% year-on-year.
“As observers of the credit market, we see rising tax debts as one of the key indicators of cashflow dynamics,” concluded Walters.
“Whilst large businesses in logistics and construction are using trade credit to maintain momentum, it seems many smaller players are avoiding new debt entirely, with new company formations in construction falling 53% year-on-year this quarter as the sector enters a period of consolidation.”
The data reveals a credit market increasingly divided between businesses managing conditions successfully and those struggling to access finance. The surge in credit shopping among high-risk SMEs suggests these businesses face mounting pressure to secure funding as traditional lending relationships prove insufficient.
For stable businesses, the environment has created what Walters describes as ‘rate resignation’, an acceptance of current conditions that favours existing banking relationships over shopping for better terms. This pragmatic approach contrasts sharply with the behaviour of higher-risk businesses forced to make multiple applications.
The sectoral pressures in construction and logistics, particularly the spike in tax debt disclosures, indicate cashflow challenges as businesses prioritise immediate operational costs over tax obligations. The 49% surge in construction tax debt and 97.7% spike in logistics tax debt in March specifically suggest acute pressure points that may foreshadow broader challenges if conditions don’t improve.
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