Stronger competition for loans is benefitting small businesses, according to new research from the Australian Banking Association (ABA). The battle between lenders to win the business of small-business clients is pushing down the real cost to small businesses of acquiring finance. The ABA’s latest industry report focusing on small and medium businesses reveals that:
- Strong lending competition means the margin banks charge on small-business loans above the cash rate has fallen to a five-year low.
- Forty per cent of small businesses have sought finance from their bank.
- Banks are providing record levels of lending, with the level of credit currently credit outstanding now standing at $750 billion. That is up from $567 billion in 2023.
- New technology and systems have seen one in four small businesses experience faster approval times for credit.
The underlying data shows average quarterly margins have narrowed by 39 basis points since peaking in late 2022, driven by increased competition between bank and non-bank lenders. For an SME with a $500,000 loan, that narrowing translates to approximately $1,950 in annual interest savings. That equates to about two weeks’ pay for a minimum-wage employee.
More competition means competitive pricing
ABA CEO Simon Birmingham says that the report highlights the benefits stronger competition is offering small-business customers. “We are seeing banks compete hard to win small-business customers and that is translating into more competitive pricing for those businesses,” he says. “This is competition working exactly the way it should, giving owners more choice about who they bank with and more finance to reinvest into their business.
“Australia’s 2.7 million small and medium businesses are absolutely critical to the economy,” he adds. “Banks are providing them with the support they need to operate, to grow and employ more Australians. We are seeing record amounts of lending to small businesses with $750 billion in outstanding credit. [This is] providing an important injection of financing for working capital, new plant and machinery or opportunities for expansion.
Birmingham points out that banking support extends beyond just finance. “Banks provide small-business customers with the payment infrastructure they need to operate,” he explains. “[This includes] important protections to prevent scams and fraud. It’s this day-to-day financial infrastructure that allows businesses to operate whether it be transaction accounts, online banking, payments services or cashflow tools.
“Support isn’t just there for the good times,” Birmingham stresses. “When the going gets tough, banks have dedicated teams to assist small business customers navigate through harder economic conditions.”
SMEs critical to the economy
The report data shows that 97.3 per cent of the actively trading businesses in June 2025 were small businesses employing fewer than 20 people. Medium-sized businesses (defined by the ABA as employing 20 to 199 people) accounted for 67,857 businesses.
In more detail, of the 2,724,326 SMEs in Australia:
- 1,735,470 were self-employed or non-employing businesses.
- 688,870 employed one to four people.
- 232,129 employed five to nineteen people.
- 67,857 employed twenty to two hundred people.
It’s a digital world, but that carries risk
Two-thirds of SMEs surveyed say that they want interactions with their bank to be mostly, if not entirely, digital. Only one in 10 still prefer to do banking in-person.
That digitalisation of business means that most SMEs now have some form of online presence – through a website, social media or an online marketplace. However, and that connectivity is exposing businesses, however small, them to increased cyber risk. Research reveals that:
- 62 per cent of businesses with 0–4 staff have an online presence.
- 84 per cent of businesses with 5–19 staff have an online presence.
- One in five businesses reported experiencing a cyber security incident.
- Four in five businesses reported being exposed to a scam.
- In the 2025 financial year alone, banks invested $2.5 billion in scam and fraud prevention.
Help at hand in troubling times
Global events in 2026 have driven sharp increases in fuel prices and supply chain disruptions. Most business in the fields of manufacturing, freight, logistics, fuel, fertiliser and plastics have faced sudden cost pressures and cashflow challenges.
In response, the Australian Government has established the National Reconstruction Fund Corporation’s (NRFC) $1 billion Economic Resilience Program (ERP). The scheme provides access to zero-interest loans for many businesses. Eligible businesses with annual turnover of up to $100 million can apply through participating banks for zero-interest loans of up to $5 million. The aim of the initiative is to help those businesses manage increased fuel and input costs, address supply chain disruptions and maintain business continuity during periods of market stress.
This article was first published on Inside Small Business.
