Outlook for 2025 remains cautious
Small and medium-sized enterprises (SMEs) continue to face financial challenges, with nearly half postponing planned investments due to persistent inflation and cashflow pressures, according to new research from Banjo Loans.
The lender’s 2025 SME Compass report found that 45% of SMEs delayed strategic decisions or business opportunities in the past year, citing ongoing uncertainty and reduced confidence. Industries such as manufacturing (56%), financial and insurance services (53%), and arts and recreation (53%) were among the most affected.
Banjo Loans chief executive Guy Callaghan (pictured above) said the findings reflected the broader challenges SMEs were facing as they navigated volatile economic conditions.
“Cash flow remains a critical issue for SMEs which highlights the importance of careful financial management to ensure SMEs can continue to focus on growth and run their businesses without losses in this uncertain market,” Callaghan said.
The data shows a growing concern around inflation’s impact on growth. Two years ago, 50% of SMEs considered inflation a barrier to growth. That figure has now climbed to 65%.
Sectors most affected by delayed investments tend to operate with longer payment cycles and higher upfront costs, placing additional strain on operations. While two-thirds of businesses met their cashflow targets this year, 33% said they are keeping a closer watch on spending. Just over half, or 55%, reported offering clients 30-day payment terms.
Banjo Loans’ latest SME Business Barometer showed limited appetite for borrowing in Q4 2024, as economic pressures and subdued consumer demand persisted. Reported loan applications remained nearly unchanged, fluctuating less than 1% over the year.
Even with interest rates easing and inflation showing signs of cooling, the SME Compass report indicates that rising costs remain the primary concern for SMEs. Callaghan noted that many businesses are changing strategies after previously passing increased costs onto customers.
The outlook for 2025 remains cautious, with 65% of SMEs expecting inflation to remain a growth barrier. Among their planned responses, 39% aim to reduce costs, 36% will increase prices, and 30% intend to be more selective in the clients or opportunities they pursue.
Still, the report identified some signs of resilience. Nearly seven in 10 SMEs said they expect to meet their growth targets this year. Among those on track, 70% focused on improving their products, while 66% invested in technology to drive expansion. Key obstacles included inflation (39%), lower consumer demand (33%), hiring difficulties (26%) and tax liabilities (18%).
“There is a certain resilience and determination in the SME sector that is why it is such an important part of the economy and a key barometer of our economic outlook,” Callaghan said. “What we are seeing are SMEs continually flexing and adapting their approach to managing inflation by focusing on both internal and external cost reductions, without burdening customers, and all the time still striving for growth.”
The report also found that 44% of SMEs plan to use external financing in 2025. Of those, 61% are seeking funding through banks, 28% are relying on capital from founders, and 24% are turning to non-bank lenders. Despite ongoing rate uncertainty, 52% of SMEs said they remain cautiously optimistic heading into the year.
On the hiring front, 45% of SMEs said recruitment had become easier in 2024 compared to prior years. Still, workforce concerns persist, particularly in education and training (49%), financial services (47%), and manufacturing (44%). Looking ahead, 63% of SMEs say they will prioritise employee well-being as part of their workforce strategy, and 46% expect to grow their headcount in the coming year.
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