Most Australian small businesses never apply for a loan. Not because they do not need capital, but because they have decided, consciously or otherwise, that the process is not worth the trouble.
Australian Bureau of Statistics data from the Characteristics of Australian Business survey shows that only 15% of businesses sought debt or equity finance during the year ended 30 June 2022. The remaining 85% funded their operations entirely from internal cash flow, personal savings, or simply went without.
That figure is striking. It suggests a significant portion of the SME sector is either underinvesting in growth or self-funding at a level that constrains their capacity to scale. Understanding why this happens, and what it is actually costing businesses, matters for every owner who has ever considered whether external finance is worth pursuing.
The ABS data reveals a clear pattern: the smaller you are, the less likely you are to seek external finance.
Among micro businesses with 0 to 4 employees, fewer than one in ten reported seeking debt or equity finance. For businesses with 5 to 19 employees, the proportion rises but remains well under 20%. Only at the medium business level (20 to 199 employees) does external finance become a common part of the funding mix.
Industry makes a significant difference. Mining led at 37%, reflecting the capital-intensive nature of extraction and exploration. Agriculture, forestry and fishing came second at 28%, where seasonal cash flow cycles and equipment investment create regular funding needs. At the other end, service-based industries with lower capital requirements reported much lower rates of seeking external finance.
The picture that emerges is not one of businesses thriving without capital. It is one of businesses avoiding external finance because the perceived cost (in time, complexity, and risk) outweighs the perceived benefit.
The ABS survey asked businesses about factors that prevented or limited their access to finance. 18% of businesses reported at least one barrier. The top responses reveal that the biggest obstacles are not rejection. They are hesitation.
What stands out is how many of these barriers are self-imposed. Businesses are not being turned away by banks in large numbers. They are turning themselves away before they even apply.
The collateral barrier deserves particular attention because it affects how much capital a business can access, not just whether it can access capital at all.
RBA data shows that approximately 48% of all small business credit in Australia is secured by residential property. Loans secured by residential property are on average four and a half times larger than loans secured by other assets or unsecured loans. This means the system structurally rewards business owners who are willing to put their home on the line and penalises those who are not.
Several members of the RBA's Small Business Finance Advisory Panel have reported choosing to fund their business entirely with equity because they were unwilling to pledge their family home. Others described loan products as too inflexible or risky given the uncertain economic environment.
The availability of unsecured finance has improved. Non-bank lenders have increased their share of SME lending, particularly for smaller loans, and some lenders now offer products secured by equipment, invoices, or future revenue rather than property. However, unsecured credit remains below 5% of total small business lending according to RBA data. The structural reliance on residential property as the primary form of collateral has not fundamentally changed.
The ABS Characteristics of Australian Business data was collected for the year ended 30 June 2022. The survey has moved to a biennial cycle and the next release is expected in June 2026. That means the structural data on finance-seeking behaviour and barriers is nearly four years old.
However, the RBA's more recent Small Business Finance Advisory Panel reports (October 2024 and October 2025) provide updated context. The key shifts since the ABS data was collected include the following.
Access to finance has improved at the margins. The RBA's 2025 bulletin reports that multiple banks have expanded their focus on SME lending, non-bank lenders have gained market share, broker activity has increased, and approval processes have become faster and more automated. Lending rates for SMEs declined by a little more than the cash rate through 2025, though the February 2026 rate increase reversed some of that relief.
But access challenges persist. One in five SMEs still reports challenges obtaining finance on suitable terms. The most commonly cited issues are strict lender requirements, difficulty obtaining a suitable interest rate, long processing times, and collateral requirements. These are the same barriers the ABS identified in 2021-22, suggesting the underlying dynamics are slow to change.
Confidence remains fragile. NAB survey data shows SME confidence dipped following the February 2026 rate increase, and loan applications have been flat. The pattern of hesitancy and self-exclusion from external finance appears to be continuing, with businesses pulling back on borrowing appetite amid rate uncertainty.
If you are running a business and have never seriously explored external finance, you are in the majority. But being in the majority does not mean you are making the optimal decision.
Businesses that rely solely on internal cash flow to fund growth are constrained by their current profitability. They cannot invest ahead of revenue. They cannot smooth out seasonal cash flow dips. They cannot take advantage of time-sensitive opportunities that require upfront capital.
The first step is understanding whether the barriers you perceive are real or assumed. Many business owners believe they will be rejected, and that belief alone stops them from applying. Well-prepared applications with clean financials and a clear purpose for the funds have significantly better outcomes than most owners expect.
The second step is getting your financial reporting to a standard that supports a strong application. Clean, current, and well-organised financials are the single biggest factor in both your approval likelihood and the rate you receive.
The third step is understanding the full range of products available. The lending market has changed significantly. Non-bank lenders, equipment finance, invoice finance, and revenue-based lending all exist as alternatives to the traditional bank term loan secured against your house.
According to ABS data from 2021-22, only 15% of Australian businesses sought debt or equity finance during the year. The rate was highest in mining (37%) and agriculture (28%), and lowest among service-based industries.
The biggest barriers are uncertainty about economic conditions (13%), insufficient sales or cash flow (9%), and collateral requirements (4%). Many businesses self-select out of the process before they apply, believing they will not qualify or that the risk is too high.
Not necessarily. While approximately 48% of small business credit is secured by residential property, options have expanded. Non-bank lenders increasingly offer equipment-secured, invoice-financed, and unsecured lending products. However, residentially secured loans typically offer lower rates and higher borrowing limits.
ABS data identifies uncertainty about economic conditions, insufficient sales or cash flow, insufficient collateral, existing debt levels, and perceived high risk as the top barriers. The RBA adds strict lender requirements, unsuitable interest rates, long processing times, and collateral demands to the list.
The RBA reports that access has improved, driven by increased lender competition, more non-bank options, faster approval processes, and some easing in lending standards. However, one in five SMEs still reports challenges, and the fundamental barriers around collateral and economic uncertainty persist.
ABS Characteristics of Australian Business 2021-22: https://www.abs.gov.au/statistics/industry/technology-and-innovation/characteristics-australian-business/latest-release
RBA Bulletin October 2025: Small Business Economic and Financial Conditions: https://www.rba.gov.au/publications/bulletin/2025/oct/small-business-economic-and-financial-conditions.html
RBA Bulletin October 2024: Small Business Economic and Financial Conditions: https://www.rba.gov.au/publications/bulletin/2024/oct/small-business-economic-and-financial-conditions.html
RBA Statistical Table D14: Lending to Business by Business Size: https://www.rba.gov.au/statistics/tables/
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