Key themes explored below:
Business loan demand remains strong
Commercial credit demand saw a 5.2% increase in Q2 2025, primarily from a 6.0% surge in business loans, according to Equifax Quarterly Credit Insights. This trend continued in July and August, with Equifax Monthly Credit Pulse showing business loan demand rising 6.0% and 7.0% respectively compared to the same months in 2024. Non-bank lenders, Tier 2 banks and the Big 4 all experienced an increase in commercial credit and business loan enquiries.
This sustained demand suggests businesses in capital-intensive sectors are seeking funds for investment, while those in consumer-reliant sectors are likely using credit for operational stability amidst ongoing economic uncertainty.
Increase in Days Beyond Terms
Average trade payment times deteriorated slightly in Q2 2025, particularly in South Australia, New South Wales, and Victoria. This trend has continued in the following months, with the average DBT rising to 4 days in August, a 17.9% increase from August 2024.
The Construction and Rental, Hiring & Real Estate sectors have the highest DBT, taking more than double the average time to pay. Construction DBT points to ongoing cash flow issues, particularly for builders on fixed price models. However, there’s a positive note: DBT in this sector has been declining every quarter from its Q4 2023 peak.
Credit shopping surges among high-risk entities
Inflation stabilisation and recent interest rate cuts triggered a surge in credit shopping in Q2 2025 among lower-score borrowers. Low and medium risk borrowers had similar levels of credit shopping enquiries as the previous year. Credit shopping is defined as a borrower making multiple enquiries for similar products across several lenders within a 30-day window, often indicating difficulties in securing credit on favorable terms.
Over half of all credit enquiries in the construction and professional services in Q2 were from ‘shopping around’ borrowers. In construction, this behaviour increased among both SMEs and large businesses.
Although high-risk Professional Services borrowers still had one of the highest rates of credit shopping in Q2, the level was 8.0% lower than the same period the previous year. In contrast, the retail sector saw one of the lowest levels, a 17% reduction year-on-year. Across all major sectors, the quality of high-risk enquiries - those with an Equifax score below 600 - remained similar to last year’s levels.
Shopping behaviour worse among SMEs
While larger businesses were 10% less likely to credit shop in Q2 than a year prior, nearly 1 in 2 enquiries from high-risk SMEs were credit shopping.
SMEs in the construction sector saw a 25% increase in credit shopping in Q2, with 3 out of every 5 borrowers in this group shopping for credit. In the retail sector, SMEs resumed credit shopping after three quarters of reduction, with 16% of all enquiries in this sector approaching at least 3 different lenders. In hospitality, 40% of borrowers enquired from at least three different lenders in the 12 months to Q2 2025.
New business formation stifled, exits accelerate
New entity formations fell by 9% in FY25, significantly impacting Professional Services (-42%), Construction (-13%), and Hospitality (-20%). Concurrently, company exits increased by 12% in FY25 and were 12% higher than the previous year. The construction and retail sectors saw exits increase by over 13%, as cost pressures persist.
Company exits refers to businesses leaving the market, including those that have not gone into insolvency or external administration.This trend, along with fewer new entrants, contributed to a slower growth in credit-active entities in Q2 2025. The total number of credit-active entities grew just 3.1% in FY25, less than half the growth rate of FY24.
Business loan demand rebounds in construction
The construction industry, often considered high-risk, saw a 4.3% uplift in business loan demand in Q2 2025, driven by large businesses. This was particularly evident among non-bank lenders, where there was a 8.3% increase in credit enquiries from the Big 4 compared to the same quarter last year.
Interestingly, construction enquiries to auto financiers reduced by -6.1% in Q2 for both SME and large business groups vs the previous year. Asset finance enquiries also dipped, largely due to an -8.7% plunge in SMEdemand, signaling a pause in capital investment.
Hospitality sector under pressure
The hospitality sector continues to face significant challenges from subdued consumer spending and rising operational costs. Business loan demand was relatively subdued in Q2 2025, with the exception of Queensland, which grew by 4.0%.
Demand from SMEs (3.2%) was greater than that from large businesses (1.0%). Notably, the quality of SME loan applications was significantly better, indicating a greater need for cashflow among even lower-risk businesses.
Enquiries for trade credit reduced by -5% in Q2 2025 compared to the same period the previous year. However, debt is being paid back earlier than 12 months ago when peak levels were observed.
Retailers prioritise cash flow
Retailers are navigating a complex environment of subdued consumer spending and cost-of-living pressures. Overall commercial loan demand was relatively subdued in Q2 (0.8%) compared to the same period the previous year, but demand for business loans was up 4.3% among SMEs and 1.0% among large businesses. Large business loan enquiries were 5.4% higher at Big4 lenders and 10.5% higher in Tier 2 bank lenders compared to 12 months ago.
Asset finance enquiries reduced by -7%, likely delaying capital purchases amidst revenue and margin pressure. After five quarters of stability, Q2 had a 1.75x increase in payment days since last year.
Professional services growth amid underlying strain
Professional Services saw strong overall credit demand of 5.8% in Q2 2025, driven by large businesses, which were up 9.8%. Business loan demand also rose, with large businesses increasing by 11% compared to a 5.0% increase for SMEs.
However the sector is under pressure, with an increase in trade payment days after four quarters of stability, and a 26% rise in insolvencies in Q2 2025. While rate cuts spurred a 7.0% rise in large professional services firms' asset finance enquiries, SMEs experienced a -3.0% contraction in demand. A surge in business loan demand from high-scoring SMEs suggests a growing need for supplemental credit to support business operations. Trade credit demand improved 1.5% in Q2, with SMEs showing very high credit quality
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