What’s happening New data from Alares Credit Risk Insights shows a difference in credit enforcement across Australia. Non-bank lenders have reached record or near-record levels of judicial enforcement since 2019, and this has accelerated particularly in 2023 and 2024.
Why this is important: Understanding this shift can help executives assess whether lending decisions will strengthen or jeopardize long-term viability, especially as business conditions deteriorate.
Australian business lending is undergoing a structural shift that is changing the way businesses obtain and manage debt. The change reflects tighter lending standards across the banking system and a difference in the way traditional and alternative lenders approach risk.
Andrew Spring is a partner at Jirsch Sutherland, an insolvency solutions and business rescue firm. His analysis of new enforcement data reveals a significant pattern in how credit pressures are being exerted across the economy.
Through most of 2025, approximately 30,000 Australian businesses were affected by insolvency-related activity. In recent months, that number has risen to more than 32,000. In this environment, the role of various creditors in driving enforcement has noticeably changed.
“From an insolvency perspective, enforcement pressure has not decreased, but shifted,” says Spring. “While the ATO remains the dominant source of litigation, non-bank lenders are responsible for an increasing share of insolvency-related enforcement as the big banks step back.”
The data tells a clear story. Major banks steadily increased lawsuits between 2019 and 2024, then reduced enforcement activity in 2025. In contrast, non-bank lenders have continued to accelerate their judicial recoveries during this period and are now reaching record or near-record levels.
This difference reflects a deliberate change in the lending strategy of large financial institutions.
Patrick Schweizer, director of Alares, explains how it works. “Post-COVID, both the big four banks and non-bank lenders steadily increased their judicial recoveries. However, the big banks reversed course in 2025 and began to scale back their judicial activities, while non-bank lenders continued to increase at an even faster pace.”
The shift is not random. Schweizer identifies a structural cause: “I suspect that the big four are now heavily focused on very low-risk lending, especially residential mortgages and large corporates. This is pushing SMEs and borrowers with less-than-perfect credit histories toward second-, third- and fourth-tier lenders. There has also been a relative explosion of new private lending in recent years.”
The consequence is significant. As banks withdraw from lending to SMEs, more and more SMEs have no choice but to access alternative financing.
The hidden costs of easy access
Non-bank loans seem attractive when traditional financing is no longer available. Terms are negotiated faster, documentation requirements are lighter, and approval is quick. This accessibility masks a fundamental reality: alternative financing comes with structural costs that traditional bank debt does not.
Spring identifies the key differences. “Non-bank financing can play an important role in certain situations, but is often associated with higher costs, stricter covenants and faster enforcement initiatives.”
Higher costs are obvious. Non-bank lenders charge interest rates that reflect higher risks and operating costs than big banks. Closer covenants are less visible, but have more consequences. These are conditions attached to loans that limit the operation of a company. A covenant may require specific cash reserves to be maintained, dividend payments to be limited, or further borrowing to be limited.
Faster enforcement triggers are the biggest difference. When a traditional bank loan violates a covenant or payment terms are not met, the bank typically conducts a recovery process that can sometimes take months. In contrast, non-bank lenders are often more likely to take legal action, especially in tighter lending environments.
The acceleration of legal action reflects this approach. As non-bank lenders face increasing credit risk themselves, they are increasingly turning to legal enforcement to recover funds before assets disappear or business conditions deteriorate further.
The insolvency background
The shift towards non-bank lending is taking place against the backdrop of persistent insolvency pressures. After a brief dip in November 2025, insolvencies rose again in December, with annualized figures surpassing 2024 levels.
The ATO remains the dominant source of judicial insolvency actions across Australia and is well above historical levels. The number of direct ATO lawsuits against companies and individuals continues to increase, even as seizures in personal bankruptcies remain relatively limited.
This combination creates a particularly challenging environment for companies already experiencing cash flow stress. Multiple creditors are willing to use judicial enforcement simultaneously, increasing the pressure on companies in difficulty.
What drivers need to understand
The data reinforces a crucial point for business leaders: the source and terms of financing directly impact how quickly a company can face legal action if conditions deteriorate.
Spring emphasizes that easy access to non-bank loans does not remove the responsibility of directors to act prudently. “Easy access to non-bank loans and low-doc financing does not remove a director’s responsibility to act prudently. Before taking on any more debt, directors should stop, look in the mirror and trust that the decision will not jeopardize the long-term viability of the company.”
This requires insight into different realities. First, non-bank financing often masks the true cost of capital. Interest rates are higher, but the complexity of covenants can be just as expensive. Second, enforcement can escalate quickly. A missed payment or breach of a covenant can result in legal action within weeks rather than months.
Third, the timing of this shift is important. Companies are turning to non-bank lenders just when credit conditions are tightest and economic conditions are most vulnerable. This combination increases the chance that a company will have difficulty meeting stricter conditions during a recession.
Spring emphasizes the importance of forward-looking analyses. “Directors need to understand how quickly conditions can escalate if trading deteriorates, and why early advice is critical.”
This means that financial projections under adverse scenarios must be stress tested before loans are granted. If a company cannot comfortably pay off its debt if revenues fall by 20 percent or costs rise unexpectedly, non-bank financing at higher costs and with faster enforcement mechanisms becomes particularly risky.
The broader implication
The difference in lending behavior reflects a structural shift in the way credit is distributed across the Australian economy. Major banks concentrate their lending on the lowest-risk borrowers: homeowners with significant home equity and large corporations with established cash flows. Everyone else is being pushed towards alternative lenders.
This creates a tiered lending system in which access to cheaper capital becomes a competitive advantage for established companies, while struggling or newer companies are forced into more expensive, more restrictive financing arrangements.
For directors and business owners, the implication is clear: understanding the source and terms of financing is as important as understanding the business itself. Easy access to capital is not always beneficial when costs and enforcement conditions create vulnerability rather than strength.
The right time to seek advice is before signing the loan agreement, and not after enforcement action has begun.
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