Small Businesses Show Resilience Despite Pandemic and Economic Challenges
The Reserve Bank of Australia's October 2026 Financial Stability Review reveals that more small and medium-sized businesses were profitable in late 2025 than before the pandemic. Despite facing challenges like inflation, rising interest rates, and increased energy costs, many firms have maintained cash buffers above longer-run averages. Aggregate corporate leverage remains stable, indicating that the business sector has not been overburdened with debt.
Three key indicators highlight the resilience of the sector: profitability, cash reserves, and debt levels. Profitable firms generate operational cash, enhancing their ability to manage debt and unexpected costs. Elevated cash buffers allow businesses to sustain operations during slow periods without additional borrowing. Stable leverage suggests that the sector has not taken on excessive debt relative to its size.
The Review notes that total company insolvencies have declined over the past year, aligning with longer-run averages. However, stress remains elevated in sectors like hospitality, construction, and transport. The Review also highlights that Australian banks are well-positioned to continue lending, even in a downturn, contributing to the overall resilience of the financial system.
Recent regulatory changes have impacted small businesses that accept card payments. Effective 1 October 2026, card surcharges were removed on networks like eftpos, Mastercard, and Visa. The reforms also lowered caps on interchange fees, with card issuers' interchange revenue expected to decrease by an estimated $660 million annually. Businesses can still offer discounts for specific payment methods, and costs can be reflected in overall pricing.