Australian small-to-medium-sized enterprises (SMEs) are increasingly turning to longer-term loans to weather economic challenges. According to the latest Banjo Loans Business Barometer, loan applications have surged by 43% in the first quarter of the 2025 financial year.
Despite ongoing economic difficulties, loan applications surged by 43% compared to the previous quarter, indicating a growing demand for financing solutions as businesses look to navigate tough times. This sharp increase follows a strategic move by Banjo Loans, which extended the repayment period for its Business Loan products from 36 months to 60 months two months prior to the report’s release. The extended loan terms have been a key factor in driving the rise in loan applications, offering SMEs more manageable repayment options by spreading their financial obligations over a longer time horizon.
Banjo Loans CEO, Guy Callaghan, emphasized the role of this product enhancement in the spike of applications, attributing it to small business owners’ preference for longer repayment terms that ease cash flow pressures. He noted that in a challenging economic environment, many SMEs are increasingly looking for financing solutions that provide them with greater financial flexibility and resilience. The Barometer, which provides a comprehensive look at trends in loan applications, loan sizes, and industry-specific data, suggests that while borrowing activity is increasing, many SMEs are still facing significant financial constraints.
Interestingly, the report reveals divergent trends across Australia. SMEs in regions such as Queensland, Western Australia, and the Northern Territory are bucking the national trend, with a lower volume of loan applications, suggesting continued economic struggles or hesitation to take on new debt in these regions. Conversely, SMEs in Victoria, South Australia, and New South Wales are increasing their borrowing activities, with a notable rise in loan applications and loan values. This suggests that some businesses, particularly in these states, are more confident in their ability to manage debt and are seeking additional financing to support recovery or growth initiatives.
The report also highlights sector-specific borrowing trends, with significant resilience observed in industries such as accommodation and food services, IT and media, administrative services, and healthcare. These sectors have demonstrated borrowing growth, indicating a degree of robustness and confidence despite broader economic challenges. Additionally, there has been a notable increase in loan applications from SME businesses operating in the electricity, gas, water, and waste services sectors, which saw a staggering 167% rise in borrowing. This suggests that while the broader economic environment may be subdued, there are specific areas of strength, particularly within essential services, where businesses are capitalizing on opportunities for growth and expansion.
However, not all sectors fared well. Borrowing activity in agricultural and fishery services declined by 44%, reflecting the ongoing pressures facing these industries, likely due to factors such as climate challenges, supply chain disruptions, and fluctuating market conditions. Similarly, healthcare services saw a modest 9% dip in borrowing, which could indicate a combination of factors such as reduced demand for certain services or tighter financial conditions within the sector.
One of the most important insights from the report is that this is the first time in six consecutive reporting periods that loan applications have grown. This signals a potential turning point for SMEs, as they seek to adapt and find financing solutions to help them weather ongoing economic uncertainties. While the loan application growth of 43% is encouraging, the corresponding 45% increase in total loan value is even more significant, suggesting that SMEs are not only applying for more loans but are also seeking larger amounts of financing. This could point to an increased need for capital to support expansion, invest in new projects, or manage ongoing financial challenges.
Despite these positive signs, Callaghan cautioned that the broader economic environment remains difficult for many small businesses, with SMEs still in recovery mode following a steep 40% year-on-year decline in total loan value during the final quarter of 2024. He stressed that while some sectors and regions are showing resilience, many SMEs continue to face financial hardship, and their borrowing capacity remains constrained. The rise in loan applications is encouraging, but sustained recovery will require continued support from policymakers and financial institutions.
Looking ahead, Callaghan advocated for a proactive approach to supporting SMEs, including potential interest rate cuts that could provide the necessary stimulus to invigorate the sector. He emphasized that with the right financial support, the momentum observed in the latest report could be sustained, helping more SMEs adapt to the challenging economic climate and take advantage of emerging opportunities. The significant growth in loan submissions from sectors like energy, gas, and waste services suggests that there are pockets of strength in the economy that can be leveraged for broader recovery. However, continued vigilance and tailored support will be crucial in ensuring that SMEs can fully capitalize on these positive trends.
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