With economic growth staying subdued, small-to-medium businesses (SMBs) will face increasing challenges across the board next financial year. Interest rates remain high, leaving businesses to absorb higher running costs or pass them on to consumers who are already tightening budgets.

Considering the outlook, Small Business Loans Australia founder, Alon Rajic, undertook extensive research to identify the greatest challenges facing SMBs in FY25 and the consumer habits that could exasperate them.

While SMBs have a lot to think about, there are supports and solutions available to help them navigate this tumultuous time, according to Rajic.

“Small businesses account for more than 95% of the Australian business sector and, in turn, the economy. They are now facing particularly challenging times. More than ever, it’s important business owners review their operations, where they are spending, how they are absorbing higher costs, and how to protect their business from over-spending, cyber security threats and increasing climate accountability,” he said.

“Most importantly, business owners should get to know what supports and solutions – from government to private finance providers – are available to them. Understand the landscape, prepare early, and you will navigate tough times easier.”

Top eight challenges and how to help ease the pressure

  1. Absorbing financial pressures: SMBs continue to absorb the cost of inflation, higher interest rates and wage increases, forcing them to tighten budgets and be conservative about investing in capital to sustain and grow their business. The 2024/2025 Federal Budget allocated $641.4 million to supporting small businesses through energy bill rebates, measures to improve cash flow and payment times, an extension to the instant asset write-off and more. Small businesses should explore what is on offer to make the most of available support.
  2. Cyberattacks ramping up: As cyber criminals become more sophisticated, SMEs need to invest more in protecting their business by updating software, engaging an IT professional, getting cybersecurity insurance and educating staff about security measures and management. Basic measures to implement now include turning on multi-factor authentication and backing up information and data. Financial support is available from the Small Business Cyber Resilience Service Program.
  3. Lower investment in business assets: 90% of Australian businesses are pulling back on borrowing, with 69% holding off on investments that would improve or grow their business. Nearly half (45%) of business owners say they will spend more time sourcing and comparing the best value loan, while 23% will spend more time considering whether to apply for a loan at all to grow their business. There is support available, such as the government’s instant asset write-off, which allows SMEs to immediately deduct assets. Small business energy incentives may also bring some relief.
  4. Job mobility highest in a decade: Flexible working arrangements, social events, team building days and novated leases are among the retention and acquisition incentives that businesses are considering. In a Small Business Loans Australia study, more than two-thirds (69%) of Australian business directors and decision-makers believe novated leases would help them retain employees, given the ability to use vehicles for personal and work purposes with the option to eventually own it. In the same study, 70% also see novated leases as a cost-saving alternative to company cars. Novated leases are a popular, win-win incentive, allowing employees to buy a car with pre-tax dollars and cutting costs for employers.
  5. Consumers rein in spending: Consumers became more selective in their spending in the first quarter of 2024, with discretionary items such as home furnishings, household equipment and other miscellaneous goods and services all experiencing a downturn. Rather than reducing quality of products and services and raising prices, businesses could look to loyalty programs to retain their best customers, look at ways to streamline business operations to cut costs, and position for recovery.
  6. Rising cost of car ownership: Vehicle running costs are rising, with petrol prices jumping. For drivers looking to electric vehicles for relief, while days of subsidised purchases are winding down, significant savings can be made on an EV’s running costs with a 500km discrepancy between pure electric vehicle battery ranges, with some having the capability to get drivers from Sydney to Melbourne in one top-up charge and others not making it to the state border. The 2019 Hyundai Ioniq EV sedan (at $36,630) topped the chart with an annual fuel cost of just $491. The 2023 Tesla Model 3 came in second, with an annual running cost of $554.  
  7. Sustainability pressure mounting: 2025 marks the five-year countdown to Australia’s 2030 emission reduction target of 43%, and the first phase of a pending climate reporting regime requiring businesses to report decarbonisation plans and targets. Once the Treasury Laws Amendment Bill that is before Parliament is approved, it will mandate sustainability reporting – starting with large companies and flowing on to SMBs with over 100 employees by 2027. Authorities are advising businesses to start preparing now, adding another pressing matter to the SME to-do list. Businesses can prepare by onboarding available carbon-tracking tools to enable them to develop reduction strategies.
  8. Hidden costs in overseas buying: Goods may be cheaper overseas, but buyers are missing the hidden costs in doing business this way. A study from MoneyTransferComparison showed nearly half (49%) of SMBs say they make international purchases of $2,000-plus on credit cards. In FY23 credit card revenue came mostly from foreign currency conversion charges , which can be up to 3.5%. Add annual administration fees and high interest on unpaid balances, and an international bargain quickly loses its shine. Yet, in the same study, 63% of SMEs say they use credit cards on international purchases for convenience, while 31% say they do not have time to research other payment methods. It’s worth exploring specialised transfer providers such as Currencies Direct, TorFX and Moneycorp – or a money transfer comparison platform – for potentially cheaper options.