A record share of small businesses are turning to non-bank lenders for growth funding, as bank lending preference hits a three-year low
A structural shift is under way in how Australian small businesses fund their growth, and new research suggests it has now crossed a threshold that would have seemed implausible just seven years ago.
For the first time, more than 60% of Australian SMEs plan to use non-bank finance for their next investment, according to ScotPac’s SME Growth Index for September 2026, compiled in partnership with East & Partners from direct interviews with 727 businesses. That figure has tripled from just 19% in 2019.
Meanwhile, the share of SMEs planning to use bank lending has fallen to 31% – well below the 48% peak recorded in 2023 and effectively unchanged from the previous report six months ago.
Clare Morgan, ScotPac chief executive, said the results sharpen the case for fast, flexible and scalable solutions across the SME lifecycle. “For brokers and advisers, the widening gap between SME growth or decline creates an opportunity to go beyond the transaction,” Morgan said. “Clients increasingly need advice that unites funding, forecasting, investment decisions and risk management.”
The report's results reflect a fundamental change in what small business owners want from a lender and what the major banks sometimes struggle to deliver.
A market that is splitting in two
The Index reveals a business community divided not just in its funding preferences but in its outlook. Some 56% of SMEs expect revenue growth over the next six months – forecasting an average increase of 13%, the strongest result in the Index’s history.
But 37% expect revenue to fall, by an average of 15%, also a record. The middle ground is disappearing as just 7% expect no change to their revenue, down sharply from 29% in 2020.
This polarisation is driving non-bank demand from both directions. Growing SMEs need funding that moves at the speed of opportunity – scaling with new contracts, equipment needs and expansion. Struggling SMEs need liquidity to prevent temporary pressure from becoming lasting distress.
Non banks have built a competitive advantage over the years but applying less-rigid standardised credit matrices than the traditional lenders, meaning non-banks can structure facilities around a business’s actual cash conversion cycle, adjusting repayment timing, offering interest-only periods, or extending terms when conditions tighten when banks often cannot.
The result? "Non-bank finance is now resoundingly the leading external source of planned new investment funding," said Morgan.
The self-funding trap
One of the Index’s most telling findings is the tension between how SMEs say they want to fund growth and what that actually costs them. Almost all SMEs (97%) with investment intentions expect to use their own funds or equity as at least part of their funding mix, up from 81% in 2014. The proportion planning to raise fresh equity has nearly tripled over the same period, from 11% to 32%.
The report flags a risk in this approach. Using internal cash to fund investment strips away the reserves businesses need to absorb late payments, rising costs and unexpected shocks – precisely the conditions that define the current trading environment. The businesses best placed to grow, the Index argues, are those that link investment and working capital together, preserving liquidity while still pursuing opportunity.
Non-bank facilities – invoice finance, working capital lines, asset-backed lending – are helping SMEs to invest without drawing down the cash buffers that keep day-to-day operations stable.
Speed and structure over rate
The driving force behind the shift is not price. Across the SME sector, certainty and flexibility now rank ahead of headline rate when choosing a lender. SMEs are asking not what rate they will pay, but whether a facility will hold up when their trading cycle gets complicated.
Siobhan Williams, head of mortgages, retail broker at Pepper Money, said SMEs are operating in a compressed-margin environment. “SMEs are prioritising certainty and flexibility, not just access to capital – and that’s where non-bank lenders can play a really important role, particularly when deal structuring or timing is more complex,” she said.
That preference is reflected in how SMEs describe their barriers. A record 16% of those forecasting flat or declining revenue said they were unsure which funding method to use – a signal of unmet need in a segment that the major banks have historically underserved.
Investment appetite holds
Despite the pressures, three in every five SMEs plan to invest in their business in the next six months. The $20,000 instant asset write-off, made permanent from 1 July 2026, is driving demand for equipment, vehicle and technology finance – areas where non-bank lenders have consistently moved faster than the major banks.
Michael Stavroulakis, head of product for auto and equipment finance and secured business loans at Resimac, said the lender has tailored its loan structures to free up cashflow for businesses under pressure, including more flexible pre-paid interest options to give clients additional breathing room.
While the shift to non-bank finance does not diminish the role of the major banks, it changes how brokers should be positioning them. It reflects what 727 Australian business owners said when asked where they plan to find the capital to grow. The answer, in record numbers, is no longer just their bank.
