Data from the Alares Credit Risk Insights report reveals that non-bank lenders have steadily escalated their court actions since 2019, reaching record levels by 2025. This increase became particularly pronounced through 2023 and 2024, maintaining elevated levels into 2025. In contrast, the big four banks peaked in their court actions in 2024 but eased off in 2025, indicating a clear divergence in enforcement strategies.

Several factors contribute to this shift. Major banks are increasingly focusing on low-risk lending, which has led to a tightening of credit availability for SMEs. This scenario has compelled many businesses to turn to non-bank lenders, who often offer more flexible lending criteria. However, this flexibility comes with its own set of challenges. Non-bank lenders, while providing necessary capital, are also more aggressive in their enforcement actions, as evidenced by the rising number of court proceedings initiated by these institutions.

The Australian Taxation Office (ATO) remains the dominant source of court actions, maintaining high levels of recovery efforts against companies and individuals. However, the growing presence of non-bank lenders in court enforcement highlights a broader trend of increased insolvency-related activities. By late 2025, over 32,000 businesses faced insolvency-related actions, up from around 30,000 earlier in the year.

For SMEs, this evolving landscape necessitates a cautious approach when considering non-bank funding options. While these lenders can provide essential financing, the potential for aggressive enforcement actions in the event of default is a significant risk. Businesses should conduct thorough due diligence, understand the terms and conditions of any loan agreements, and assess their capacity to meet repayment obligations before engaging with non-bank lenders.

In summary, the rise in court enforcement actions by non-bank lenders, coupled with the retreat of major banks from such activities, reflects a significant transformation in Australia's lending environment. SMEs must navigate this complex terrain carefully, balancing the need for accessible financing with the risks associated with non-bank lending practices.