Australian businesses took out more credit in August, loan applications climbed 11.3% year-on-year, but they’re not using that money to expand. Asset finance applications, the kind that fund machinery, vehicles, IT upgrades, dropped 12.7% over the same window. The gap between those two numbers tells you what’s actually happening: companies are borrowing to stay liquid, not to grow.
Equifax data shows average applicant credit scores slipped two to three points year-on-year, meaning riskier businesses are now in the queue. Large corporates drove most of the loan demand increase, up 19.2%, while smaller operators lifted enquiries by a quieter 4.3%. At the same time, SME asset finance applications fell 14.5%. The construction sector saw the steepest pullback: asset finance down 23.5%, ATO defaults up 25%.
That combination, higher borrowing, lower investment, weaker credit profiles, doesn’t signal optimism. It signals stress management.
Why companies are choosing overdrafts over equipment
When a business delays replacing a delivery van or upgrading its software, it’s making a calculation: the cost of running older gear is lower than the risk of locking in multi-year repayments right now. Uncertainty about demand, margins under pressure, trade payment delays, those factors push the break-even point further out, so the rational move is to stretch what you already own.
That trade-off shows up cleanest in the production sector: agriculture, manufacturing, logistics, wholesale. Loan demand there rose 4.2% year-on-year; asset finance fell 17.4%. These are businesses that rely on physical capital to operate, and they’re choosing working capital lines over new trucks or tractors.
The NSW large business loan demand figure, up 27.1%, looks strong until you notice asset finance didn’t follow. Western Australia was the only state where large business asset finance grew, and even then only by 1.2%. Victoria’s large business loan demand rose the slowest, 10.7%, but asset finance still contracted.
The tax debt factor
ATO defaults hit 36,900 active cases nationally in August, up 22.6% year-on-year. Construction led the increase at 25%, which lines up with the sector’s 23.5% drop in asset finance applications. Tax debt doesn’t appear on a balance sheet the same way a bank loan does, but it crowds out cashflow just as hard, and once it’s there, refinancing or new credit gets complicated fast.
Brokers working with trades and building clients now routinely factor outstanding ATO liabilities into serviceability assessments before lodging. One broker network reported a 486% jump in ATO-related lending enquiries through FY2025. That’s not a one-off spike; it’s the new baseline.
For lenders, tax debt shifts the risk profile. Major banks have pulled back from complex or distressed scenarios, so more of this demand is landing with non-bank lenders who can price the risk but need higher margins to do it. If you’re a business owner carrying ATO debt and seeking working capital, expect tighter terms and a longer approval process, or look at how non-banks are scaling up RMBS funding to handle exactly this kind of lending.
What this means for commercial property and household income
Businesses that borrow to manage cashflow rather than invest don’t expand their footprint. They don’t lease new warehouse space, open another retail site, or upgrade their office fit-out. That dampens tenant demand in the commercial property market, especially in secondary precincts where occupancy was already soft.
On the household side, if your income comes from a small business, as a director, contractor, or employee, this pattern matters. Companies under margin pressure delay hiring, freeze wage growth, or reduce hours. That flows through to serviceability calculations if you’re buying, refinancing, or trying to hold onto an investment property in a weak rental market.
The construction sector’s twin pressures, falling asset finance and rising tax defaults, also feed the supply slowdown already visible in residential approvals. Builders can’t fund new equipment or working capital at the same time they’re managing delayed payments and cost blowouts, so fewer projects start and more stall mid-build.
The catch
- Business lending demand up 11.3% year-on-year, but asset finance down 12.7%, the gap is working capital, not growth
- Average credit scores fell 2–3 points, meaning riskier borrowers are now applying
- ATO defaults rose 22.6% nationally; construction sector defaults up 25%
- Large business loan demand rose fastest in NSW (27.1%) and WA (25.6%), but asset finance contracted in every state except WA
Trade-offs: liquidity now or capacity later
Choosing working capital over asset investment buys time, but it doesn’t solve the underlying problem. Older equipment breaks more often, costs more to maintain, and eventually hits a point where replacement can’t be delayed. When that happens, you’re financing under worse conditions, higher rates, tighter credit, possibly weaker revenue, than if you’d acted earlier.
The flip side: locking in long-term debt for new assets when demand is uncertain can break a business faster than running old gear for another year. There’s no clean answer here, just probabilities and timelines.
For commercial landlords, tenant creditworthiness is shifting. A business with stable revenue but rising debt and no capex budget is a different risk than one borrowing to expand. Lease terms, security deposits, and tenant mix all need to reflect that.
Scenarios over the next six to twelve months
Base case: business lending demand stays elevated as companies roll short-term facilities to manage cashflow. Asset finance stays weak until either rates fall meaningfully or revenue visibility improves. ATO defaults plateau but don’t reverse. Commercial vacancy inches higher in B-grade stock.
Upside: faster-than-expected rate cuts or a government productivity package that includes accelerated depreciation brings forward some delayed capex. Asset finance stabilises, defaults peak, tenant demand steadies.
Downside: a demand shock, global slowdown, domestic spending pullback, another construction insolvency wave, pushes more businesses into survival mode. Loan demand spikes further as distress borrowing increases, defaults climb, and commercial property sees a sharper correction in secondary markets.
What to watch next
Track the gap between business loan enquiries and asset finance applications each month. When that gap narrows, it’s a signal confidence is returning. If it widens further, expect more cashflow stress and weaker commercial property fundamentals.
For property investors with commercial exposure, review tenant industries and lease expiry schedules. Sectors showing the steepest asset finance declines, construction, production, logistics, carry higher rollover risk.
If you’re a business owner weighing working capital against asset upgrades, pressure-test your assumptions. Model what happens if revenue stays flat for another twelve months, or if your main client delays payments by 60 days instead of 30. The decision that looks prudent today can turn into a forced sale tomorrow if the buffer’s too thin.
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General info, not financial advice.
