Commercial lending in Australia is fast being reshaped by a heady mix of higher interest rates, cautious SME sentiment and a federal Budget that has redrawn the property investment map.
The first trend is that rates are staying higher for longer. The Reserve Bank of Australia also known as RBA lifted the cash rate by 25 basis points to 4.6 percent in September, its highest level since November 2011 and the fourth increase of 2026. The move had been widely tipped, with all four major banks calling a September rate hike in the days beforehand. The central bank will now want to see how its tightening flows through to inflation while keeping unemployment in check. The sentiment and hope within the banking and finance industry is that the RBA settles on a sustainable rate rather than riding high and low cycles too much.
For commercial borrowers, the pass-through works differently from home loans. Many commercial loans, particularly larger facilities, are priced off the bank bill swap bid rate (BBSY), a market benchmark published daily, plus a customer margin. The commercial lending rates come off an index that is constantly floating. A standard variable home loan rate, by contrast, stays where the lender sets it until the lender changes it. A commercial loan tied to BBSY can move daily with the market. That means business borrowers can feel market moves well before and after any RBA announcement, which puts interest rate risk squarely in the conversation.
The second trend is that small and medium businesses are consolidating and not expanding. Business owners have become more cautious about how they approach growth and we are seeing a degree of consolidation in the business community where businesses are adverse to bigger risks. The defensive posture shows up in the data. The average SME loan size fell 20% in the June 2026 quarter, but we expect a dip in lending growth, not a stall.
Third trend happening in the market is SME owners are turning to brokers as a trusted advisor to provide real business solutions. Today, brokers work across a far wider spread of clients, segments and industries, and the skills the job demands have changed with it. Senior ex-bankers are bringing corporate-style lending experience into broking, and some now advise on club and syndicated loans. The conversations with clients have changed too leaning away from LVR discussions to how is your business going and what are the pain points we can assist with. Experienced brokers with a banking background that have seen cycles and changes in cycles understand the struggles of small business, with this experience a solid understanding of cashflow solutions and cashflow cycles in business really assist clients.
A fourth trend is the building pressure on businesses that rely on trade finance solutions. Importers are facing pressure on cost and on time. Transport costs across road, rail and sea freight have ballooned, driven by fuel and labour. Shipping delays are adding to the strain, thanks in no small part to the conflict in the Middle East and, before that, Russia's invasion of Ukraine. In that environment, the broker's job is to secure working capital facilities that bend with the conditions.
The fifth trend is how the Federal budget has redrawn the property investment map. No policy decision in 2026 has shaken the lending environment as hard as the May 2026 federal Budget and the subsequent decision to ban SMSFs from taking out new limited recourse borrowing arrangements (LRBA) to buy residential property. The fallout quickly became visible on bank books and all of the four big banks have subsequently seen a drop-off in mortgage applications. With residential investment now restricted on three fronts – negative gearing, the capital gains tax (CGT) and SMSF borrowing – commercial property, largely untouched by the reforms, is the obvious alternative.