Australia’s hospitality sector is under mounting financial pressure with insolvencies rising and businesses becoming increasingly reliant on credit to manage cash flow, according to Equifax’s latest Quarterly Commercial Insights.
Credit shopping among higher-risk borrowers is on the rise, with more applicants approaching multiple lenders in search of financing to support their business operations.
The Equifax Quarterly Commercial Insights data to June 2025 shows overall commercial credit demand grew by 5.2 per cent in the second quarter, driven largely by a six per cent increase in business loan applications.
The findings suggest businesses under economic pressure are turning to credit to sustain or grow their operations.
The report also highlights a sharp rise in credit shopping activity among lower-score borrowers, with the share of high-risk enquiries involving credit shopping climbing from 39 per cent in February to 49 per cent in March, coinciding with easing inflation and interest rate cuts.
Brad Walters, General Manager, Commercial at Equifax, said: “The increase in credit shopping behaviour is a worrying trend, as it can be an indicator of stress and suggests that a business may be struggling to gain access to credit or be unable to secure favourable terms from lenders.
“This behaviour is particularly apparent in key industries: in Q2 2025, more than half of enquiries from higher-risk entities in construction (51 per cent) and professional services (51 per cent) were shopping around, while the number of higher-risk hospitality businesses shopping for credit has increased year-on-year to 39 per cent.
“Additionally, small and medium sized entities (SMEs) are more likely to shop around for credit when compared to their larger counterparts. One in two enquiries from higher-risk SMEs were credit shopping in Q2, while large businesses are 10 per cent less likely to credit shop than 12 months ago.”
Economic uncertainty is weighing heavily on business growth, with fewer new businesses launching and more shutting down compared to last year, according to Equifax’s data. In FY25, the number of newly created entities fell nine per cent year-on-year, while company exits rose by 12 per cent.
The professional services sector saw the sharpest decline in new business entries, down 42 per cent over the past 12 months. Construction and hospitality also recorded significant drops in new business formations, down 20 per cent and 13 per cent respectively.
Insolvency rates have also surged, reaching a five-year high in the first half of 2025 – up 21 per cent from the same period last year. Hospitality insolvency rates were up 27.8 per cent making it one of the hardest-hit industries, with rising operational costs and continued cost-of-living pressures put a huge strain on business viability.
Walters added: “Together, the subdued growth and increasing risk profile of Australian businesses across key segments could hinder efforts to strengthen economic growth and improve productivity.”