Australian businesses borrowed more in July but spent less on equipment, vehicles and machinery. Business loan demand rose 6.2% year-on-year according to Equifax data, up from 3.8% growth in June. Asset finance demand fell 9.1% over the same period, marking the sharpest divergence between operational credit and capital spending this cycle.
The pattern suggests firms are prioritising immediate cash flow over long-term investment. That choice has implications beyond the balance sheet: fewer fit-outs, expansions and new premises mean softer demand for commercial property and tighter underwriting for developers relying on pre-commitments or tenant interest to secure finance.
The split across firm size
Large businesses cut asset finance for the first time since October 2025, down 4.8% year-on-year. Small and medium enterprises pulled back harder, with asset finance demand falling 12.6% nationally. Business loan demand moved the opposite direction: large firms increased enquiries, and SMEs followed.
The services sector showed the starkest contrast. Business loan enquiries climbed 21.7% overall, driven by both large firms (up 27.1%) and SMEs (up 18%). Asset finance demand in the same sector dropped 12.6% overall and 21.2% among smaller operators.
Weaker-performing sectors cut both credit types. Public sector and housing and utilities businesses reduced loan and asset finance activity, with housing and utilities SME asset finance down 20.3% year-on-year.
Why firms are choosing liquidity now
NAB’s second-quarter business survey recorded a 13-point drop in confidence and an 8-point decline in capital expenditure plans for the next year. Equifax’s repayment data shows businesses are managing debt serviceability reasonably well: 85.9% of obligations were paid on time in June, with early repayments at 11.6%. Medium and late payment categories stayed flat at 1% and 0.3%. Severe delinquencies over 90 days edged up to 1.1% from 0.6% in May.
Firms are not in distress. They are delaying discretionary spending while keeping credit lines open. That means fleet upgrades, machinery purchases and office expansions are being pushed back, not cancelled outright.
For property, the timing matters. Commercial landlords and developers betting on tenant demand or owner-occupier take-up face a longer wait. Mixed-use projects that depend on ground-floor retail or hospitality fit-outs lose momentum when those businesses are prioritising liquidity over expansion.
Key numbers
- Business loan demand up 6.2% year-on-year in July, asset finance down 9.1%
- Large business asset finance turned negative for the first time since October 2025, down 4.8%
- Services sector loan enquiries up 21.7%, asset finance down 12.6%
- NSW led loan demand growth at 15.5% for large firms and 15.3% for SMEs
- 85.9% of business debt paid on time in June, early payments at 11.6%
The retail and hospitality divide
Consumer-facing sectors responded differently to rising costs. Retail businesses cut credit exposure, with SME asset finance down 17.6% year-on-year. Accommodation and food services operators increased business loan enquiries (up 2.6% for SMEs) while pausing capital spending.
Retail is trimming overheads by avoiding new debt. Hospitality is borrowing to maintain operations while deferring renovations and equipment replacement. Both choices reduce near-term demand for commercial property upgrades and tenant improvements.
Arts and recreation businesses also pulled back on credit, suggesting discretionary sectors are waiting for clearer revenue signals before committing to expansion.
What changes the trajectory
Three variables shift the pattern: interest rate direction, revenue stability and competitive pressure.
If the RBA cuts rates over the next six months, borrowing costs for both business loans and asset finance fall. That lowers the opportunity cost of capital spending and may bring forward deferred equipment purchases. If rates stay elevated, the cash preservation strategy extends.
Revenue growth matters more. Businesses that see sustained demand will eventually need to invest in capacity. Those facing flat or declining sales will delay capital expenditure regardless of rates.
Competitive pressure is the wildcard. If rivals invest in new equipment or premises, laggards face a choice between matching the spend or accepting market share loss. That dynamic has not yet triggered a spending rebound, but it could if sentiment improves.
The property connection
Commercial property demand depends on business expansion, not just sentiment. Firms that borrow for liquidity but defer capital spending are unlikely to sign new leases, commit to fit-outs or purchase owner-occupier premises.
Developers relying on pre-commitments face longer lead times. Lenders underwriting commercial projects will discount tenant demand assumptions if businesses are pulling back on expansion capital. That tightens project finance terms and delays construction starts.
The pattern is clearest in NSW, where business loan demand climbed 15% but asset finance stayed flat. Victoria showed no growth in either category. The geographic split suggests capital city divergence will persist, with Sydney and Melbourne facing different demand timelines for commercial space.
Start here
If you are financing commercial property, assume tenant demand will lag borrowing activity by at least two quarters. Business loan growth is not the same as expansion capital. Firms are shoring up working capital, not committing to new premises.
If you are developing mixed-use projects, pressure-test pre-commitment assumptions against the asset finance pullback. Ground-floor retail and hospitality tenants are deferring fit-outs and equipment spending, which delays occupancy and complicates construction finance drawdowns.
For brokers working commercial deals, track asset finance trends in the borrower’s sector. A client increasing business loan enquiries while cutting equipment spending is managing liquidity, not growth. That distinction matters for repayment capacity and collateral assumptions.
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Broker networks are also navigating consolidation pressure as revenue per operator climbs but volumes flatten. Non-bank lenders are diversifying beyond mortgages to offset weaker residential demand, with some moving into commercial and SME credit.
General info, not financial advice.
