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Court actions from major banks eased last year but non-bank lenders have ramped up enforcement to claw back funds from small businesses, representing a shift in what is driving elevated insolvency pressure.
The latest Alares Credit Risk Insights report shows non-bank lenders have steadily increased court actions since 2019 and are now at record or near-record levels.
The increase accelerated through 2023 and 2024 and has remained elevated into 2025. In contrast, court actions by the big four banks peaked in 2024 and eased in 2025, highlighting a clear divergence in creditor behaviour.
These trends have prompted insolvency solutions and business rescue firm Jirsch Sutherland to urge company directors to take a cautious, well advised approach when considering non-bank funding.
"From an insolvency perspective, enforcement pressure hasn’t fallen – it has shifted," says Jirsch Sutherland partner Andrew Spring.
"While the ATO (Australian Taxation Office) remains the dominant source of court action, non-bank lenders are accounting for an increasing share of insolvency-related enforcement as the major banks step back.
"As banks pull back on SME (small and medium-sized enterprise) lending, more businesses are turning to non-bank lenders. With credit tightening and risk appetite shrinking, traditional finance is getting harder to secure, pushing many SMEs toward alternative funding at a time when they can least afford it."
The report from Alares found that overall insolvency-related activity increased from around 30,000 businesses for much of 2025 to more than 32,000 businesses by the year's end, with ATO court recoveries continuing to track well above historical levels.
Alares also notes that direct ATO court action against companies and individuals continues to rise, even as personal bankruptcy sequestrations remain relatively subdued.
Alares director and founder Patrick Schweizer says the divergence in court activity reflects a structural shift in lending behaviour since COVID.
"After COVID, both the big four banks and non-bank lenders steadily increased their court recoveries," Schweizer explains.
"However, the big banks did a U-turn in 2025 and started decreasing their court activity, whereas non-bank lenders continued to increase at an even higher rate."
Schweizer says the trend is likely linked to changes in where credit risk is being written.
"Speculating on cause and effect is always difficult, but I suspect the big four are now heavily focused on very low-risk lending, particularly residential mortgages and blue-chip corporates," he says.
"This is pushing SMEs and borrowers with less-than-perfect credit histories towards second, third and fourth-tier lenders.
"There has also been a relative explosion in new private lending over the past couple of years."
Andrew Spring from Jirsch Sutherland says the latest data reinforces the need for directors to fully understand the risks associated with non-bank finance.
"Non-bank funding can play an important role in certain situations, but it often comes with higher costs, tighter covenants and faster enforcement triggers," he says.
"Easy access to non-bank lending and low-doc finance doesn’t remove a director’s responsibility to act prudently. Before taking on more debt, directors need to stop, look in the mirror and be confident the decision won’t compromise the business’s long-term viability.
"Directors also need to understand how quickly conditions can escalate if trading deteriorates, and why early advice is critical."
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