Top 5 Growth Challenges for Australian Small Businesses in 2025, According to Credit Analyst Martin Iglesias

Rising business costs were cited by 72% of small businesses as the single largest obstacle to expansion. This isn't surprising when you consider that 95% of SMEs report being negatively impacted by rising wage and Superannuation Guarantee costs alone.

What many business owners don't realise is how these pressures compound. "Banks factor cost-of-living increases into their lending assessments," Martin explains. "As household expenses rise, borrowing capacity shrinks—even if interest rates drop slightly. That household expenditure burden has increased by around $1,000 monthly in recent times, which directly impacts how much businesses can borrow."

The result is a vicious double squeeze: elevated operating costs erode profitability whilst simultaneously reducing access to the capital needed for strategic investment. Growth becomes a distant dream when you're struggling to maintain margins.

2. Acute Cash Flow Strain and Declining Profitability

Sixty-four per cent of small businesses reported lower profits than the previous year, and three-quarters are experiencing cash flow issues. More alarming still is the 47% surge in insolvency appointments in late 2024—a stark indicator of how fragile SMB finances have become.

Martin sees these cash flow challenges up close. "One of the most common problems is working capital strain. Businesses need to deliver on contracts, but they're waiting 60 to 90 days, sometimes even longer, for payment. Meanwhile, they need to fund everything upfront: manufacturing, importing, or supplying goods. That creates massive working capital shortfalls."

The problem intensifies for SMBs with customer concentration risk. "Many SMEs have just one or two really big clients," Martin notes. "If they lose that key relationship, they're in dire straits. That's why working capital planning is so critical before securing major contracts."

When cash flow tightens, growth investments get deferred. Worse, 60% of owners report occasionally being unable to pay themselves. Some businesses even rely on tax office payment plans as a form of emergency lending—a dangerous strategy that creates its own set of problems.

"One of the clearest red flags is when a financial controller calls desperately needing approval to make payroll payments," Martin says. "It immediately signals serious cash flow management issues that need addressing."

3. Complex Regulatory and Compliance Burden

Compliance complexity now ranks among the top five business expenses for Australian SMBs. Many owners spend more than six hours weekly on regulatory tasks—time that could be invested in business development, customer relationships, or strategic planning.

This administrative burden has lending implications, too. "In the past five years, banks have become much more stringent about tax compliance," Martin explains. "They routinely request access to ATO portals to review running balance statements and ensure there are no arrears or payment plans. This applies to income tax, payroll tax, and superannuation obligations."

His advice to businesses seeking expansion capital is unequivocal: "Your taxes must be in order. Banks simply won't consider applications from businesses with tax arrears. It's one of the quickest ways to have your funding request declined."

As businesses scale, the governance requirements become more sophisticated. Martin emphasises the importance of financial management systems and the importance of understanding where you've been to plan where you're going.

4. Lack of Capital and Capacity for Digital Innovation

Digital transformation tops the list of challenges for Australian business leaders, yet 25% of SMBs cite lack of time and capacity as the main reason they can't adopt new technology. This creates a troubling paradox: the tools that could drive efficiency and growth remain out of reach precisely because businesses lack the resources to implement them.

Banks compound this problem by being less willing to finance innovation-based investments for SMEs. Intangible assets don't make suitable collateral for secured lending, leaving businesses focused on short-term survival rather than long-term digital transformation.

However, Martin's experience shows that strategic financing can unlock remarkable growth. He recalls working with a bricks-and-mortar white goods retailer that established an online channel. "It was a roaring success for them, but they didn't have the capacity to supply demand through that channel," he explains. By structuring international trade finance to fund inventory expansion from China and Europe, Martin helped support the business's transformation.

5. Heightened Cybersecurity Threats and Risks

Forty-three per cent of cyberattacks target small businesses, and a large proportion of Australian businesses that are hacked go out of business within six months. This stark reality means that securing the business isn't optional—it's prerequisite for any stable growth strategy.

Yet addressing cybersecurity diverts precious resources from growth initiatives, creating another drain on already stretched SMB capacity. The challenge compounds the others: costs rise, cash flow tightens, compliance complexity increases, and innovation budgets shrink.

From Barriers to Breakthroughs: A Strategic Approach

These five challenges are deeply interconnected. Financial barriers compound administrative ones, leaving limited capital and time for the future-proofing investments that businesses desperately need. The system has been supporting survival; now it needs to enable growth.

Martin's advice for mid-sized businesses seeking to expand centres on preparation and partnership. "Don't put the cart before the horse," he cautions. "Get your financials in place, ensure corporate governance is solid, and address tax compliance before approaching lenders."

But preparation alone isn't enough. "What makes a strong relationship between a business and its financial partner? Understanding the client's strategic objectives—really understanding what they're trying to achieve," Martin explains. "That's how you deliver solutions that truly meet their needs."

This includes managing expectations realistically. "Business owners have ambitious strategic objectives, but those goals need to align with what banks—or alternative lenders—will realistically provide. Sometimes you need to bring people back to earth, but that honesty ultimately serves them better."

The path forward for Australian SMBs requires more than optimism. It demands strategic financial planning, access to flexible capital solutions, and partnerships with advisers who understand both the challenges and the opportunities. Major banks are becoming more flexible—many now accept just 12 months of financials rather than three to four years—and alternative lenders offer options that traditional banking can't match.

Growth is possible, but it requires the right strategic approach. For Australian small businesses ready to scale, the question isn't whether opportunities exist—it's whether they have the right financial partner to help them seize those opportunities.