Australian SMEs are displaying indicators of cautious optimism heading into the second quarter of this monetary 12 months, with newest information from main non-bank lender Banjo Loans revealing a 14% elevate in mortgage functions throughout the July – September quarter.

This follows a 7% rise within the earlier three months, suggesting that whereas sentiment is enhancing, smaller companies stay cautious amid ongoing questions on serviceability, in accordance with the most recent Banjo Barometer report.

Regardless of the optimistic momentum, general mortgage velocity continues to gradual, the report finds, with the rise in borrowing exercise led by bigger extra established SME companies.

The Barometer’s findings additionally present that SMEs turning over $10-20 million yearly lifted borrowing volumes by 76% in the course of the quarter and 71% over the previous 12 months.

Banjo Loans CEO Man Callaghan says the most recent outcomes mirror a small enterprise sector that’s transferring ahead however not racing forward.

“We’re seeing a cautious sort of confidence. Bigger SMEs are driving progress, however for smaller operators, the main focus stays on sustaining stability. It’s not a surge of optimism, quite a gradual, considerate progress,” Callaghan mentioned.

The worth of loans drawn climbed 9% in Q1 FY26 and 11% year-on-year, reaching its highest stage in three years. This implies that whereas general functions stay flat (down 1% on the identical quarter final 12 months), companies which can be borrowing are taking out bigger loans.

Throughout industries, momentum was blended. Purposes rose sharply in Administrative and Assist Providers (+110%), Manufacturing (+61%), Lodging and Meals Providers (+45%) and Transport, Postal and Warehousing (+43%), whereas declines have been recorded throughout Monetary and Insurance coverage Providers (-27%), Wholesale Commerce (-59%) and Skilled, Scientific and Technical Providers (-63%).

Mortgage high quality weakened over the quarter, with Banjo recording a 40% enhance in cancelled functions and a 26% rise in declines. Serviceability challenges have been the primary driver behind a 42% surge in declined loans – a two-year excessive, whereas cancellations linked to lacking or incomplete paperwork lifted 39%.

Regardless of these findings, companies managing current loans are displaying monetary self-discipline.

Arrears over 30 days fell 32% to a multi-year low. The one sectors to file a deterioration have been Retail Commerce and Transport, Postal and Warehousing, with the latter sustaining arrears far increased than earlier years.

Regionally, outcomes have been blended. Mortgage functions fell sharply in New South Wales (-48%) and Victoria (-30%), reaching a two-year low, whereas Western Australia was down 25%. In distinction, Queensland recorded a 21% enhance in borrowing, and South Australia surged 300%, persevering with its sample of sturdy first-quarter exercise.

Callaghan says whereas a “robust it out” angle stays a dominant theme amongst SMEs, warning is equally dominant.

“I’ve mentioned it earlier than – SMEs are a resilient bunch, however our information exhibits we’re not seeing widespread confidence within the present financial local weather. SMEs are navigating this local weather with care, not ambition,” Callaghan mentioned.

“With out significant enchancment to financial fundamentals, whether or not that’s charge aid, shopper confidence or coverage assist, we’re more likely to see this subdued sample proceed.”

Key Highlights from the Banjo Barometer – Q1 FY26

• 14% enhance in SME mortgage functions in Q1 FY26 (up 7% on the earlier quarter)
• Mortgage values up 9% for the quarter and 11% year-on-year – highest in three years
• Borrowing led by SMEs with $10–20 million turnover, up 76% in Q1 and 71% yearly
• Mortgage cancellations up 40% and declines up 26%, pushed by serviceability (+42%) and documentation (+39%) points
• Arrears down 32% to a multi-year low
• Regional efficiency was blended:
  • SA mortgage functions soared 300%
  • QLD loans have been up 21%
  • NSW noticed a drop 48%
  • VIC fell 30%
  • WA loans declined 25%