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Small business owners will need to prepare themselves to ride out tough conditions at the beginning of the new financial year, data from Equifax has revealed.
SME insolvencies on track to double historical average, data reveals
30 June 2025
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8 minute read
New research from Equifax shows reduced credit demand and cash flow concerns will continue to plague the SME sector as the new financial year begins.
Operating costs would also be set to increase from 1 July, prolonging the chances of business owners rebounding and recovering quickly.
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Insolvencies were up by 23 per cent year on year, with more than 12,000 insolvencies to date in FY24–25, making the year’s insolvency rate on track to double the historical average, according to Equifax.
Moses Samaha, Equifax general manager, said grappling SMEs would unfortunately be unlikely to see the end of business pressures any time soon.
“Small businesses are facing soft customer demand along with inflation and global supply chain disruptions, while higher energy and wage costs could well be a tipping point for small businesses on the brink,” he said.
“Pandemic era assistance may have had a long tail effect propping up some businesses, but the impact of the end of these subsidies is becoming clear as underlying vulnerabilities are exposed. Many small businesses are also facing regulatory changes, including stricter compliance and reporting obligations, which have added pressure, particularly in construction and retail.”
Equifax data revealed that from January to April this year, SME overall credit demand was down 7.3 per cent compared to the same period last year and SME trade credit demand had taken the biggest hit, down 13.8 per cent in the year to April.
In April of this year, it was noted that businesses were paying their suppliers an average of 5.7 days late, up 16.4 per cent from April 2024, with the most significant spike being seen within the retail sector.
Samaha said a contraction in credit demand from SMEs, along with an increase in late payments, suggested that ever-increasing business pressures were taking their toll.
“Lower credit demand also suggests SMEs are not confident in investing for the future. Soon-to-increase energy costs of up to 9.7 per cent and the 3.5 per cent minimum wage increase will add to operating costs from 1 July.
Research from Equifax suggested consumers would remain cautious and would still prefer to save their money rather than spend, despite recent interest rate cuts.
In addition to this, credit card and BNPL demand was up 15.26 per cent, which indicated that consumers may have relied on credit to make ends meet rather than “splashing out” on discretionary spending.
Samaha said cash flow remained a concern for small businesses, but moderating inflation and the Reserve Bank of Australia’s recent interest rate cuts could be a turning point for the small business sector.
“There’s an expectation that insolvencies will stabilise as interest rates ease and discretionary spending returns. However, insolvencies will remain elevated compared to historic levels as the remaining businesses from the pandemic hangover are shaken out.”
“The effectiveness of interest rate cuts in increasing small business revenue hinges on a sustained recovery in consumer spending. So far, the data suggests that consumers are saving rather than spending, and this could delay any rebound in the small business sector. However, there are some emerging positive signals - household spending on hotels, cafes and restaurants rose 2.2% in April.”
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