Insolvency firms urge SMEs to be cautious as non-bank lenders ramp up enforcements

“From an insolvency perspective, enforcement pressure hasn’t fallen – it has shifted,” Andrew Spring, partner at Jirsch Sutherland, said.

“While the ATO remains the dominant source of court action, non-bank lenders are accounting for an increasing share of insolvency-related enforcement as the major banks step back.”

The latest Alares Credit Risk Insights report revealed that court actions by non-bank lenders had increased steadily since 2019 and now approach record levels. In contrast, actions by major banks peaked in 2024, highlighting a growing divergence in creditor behaviour.

“As banks pull back on SME lending, more businesses are turning to non-bank lenders. With credit tightening and risk appetite shrinking, traditional finance is getting harder to secure, pushing many SMEs toward alternative funding at a time when they can least afford it,” Spring said.

Jirsch Sutherland noted that insolvency rates remained elevated throughout 2025, despite a brief dip in November.

ASIC data showed that 3,857 companies entered external administration in the December 2025 quarter, comparable to rates in the December 2024 quarter (3,853). Insolvency rates have steadily climbed in the years following the pandemic, especially in the hospitality and construction sectors.

Patrick Schweizer, director of Alares, said that the divergence in bank and non-bank lending behaviour reflected a structural shift likely stemming from changes in where credit risk was being written.

“I suspect the big four are now heavily focused on very low-risk lending, particularly residential mortgages and blue-chip corporates,” he said. 

“This is pushing SMEs and borrowers with less-than-perfect credit histories towards second, third and fourth-tier lenders. There has also been a relative explosion in new private lending over the past couple of years.”

He urged directors to make an effort to fully understand risks associated with non-bank finance, including higher costs, tighter covenants and faster enforcement triggers.

“Easy access to non-bank lending and low-doc finance doesn’t remove a director’s responsibility to act prudently. Before taking on more debt, directors need to stop, look in the mirror and be confident the decision won’t compromise the business’s long-term viability.”