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More small and medium-sized businesses were profitable in late 2025 than before the pandemic, the Reserve Bank's October Financial Stability Review found, with many firms also holding cash buffers above longer-run averages.

Small business has had a bruising few years: a pandemic, a surge in inflation, rising interest rates and, more recently, another jolt in energy costs. It would be reasonable to expect the sector's finances to be stretched thin.

The Reserve Bank of Australia's (RBA) October 2026 Financial Stability Review (FSR) suggests a more nuanced picture. According to the Review, released on 1 October, more small and medium-sized firms were profitable in late 2025 than before the pandemic. It also found that cash buffers for many businesses remain above longer-run averages, and that aggregate corporate leverage is stable around its longer-run average.

Those findings sit alongside one of the Review's central conclusions about the business sector: "Most businesses should be able to manage elevated cost pressures, although conditions are more challenging in some sectors."

Three measures of resilience

The FSR's assessment of firms rests on several indicators that, taken together, describe a sector with more room to absorb shocks than it had before COVID.

Profitability. More small and medium-sized enterprises were profitable in late 2025 than before the pandemic. Profitable firms generate cash from their operations, which gives them more capacity to service debt and handle unexpected costs.

Cash on hand. Cash buffers for many businesses remain above their longer-run averages. Liquid reserves matter because they allow a business to keep paying staff, suppliers and lenders through a slow patch without needing to borrow more or sell assets.

Debt levels. Aggregate corporate leverage is stable around its longer-run average. Stable leverage means the business sector, as a whole, has not been piling on debt relative to its size.

The end result shows up in the failure figures. The Review said: "Total company insolvencies as a share of operating companies declined over the past year and are around their longer-run average".

Why the pre-pandemic comparison matters

The RBA's choice of benchmark is significant. Comparing today's conditions with the period before COVID gives a sense of whether firms have rebuilt the resilience they had before a sequence of shocks hit.

On profitability and cash, the answer in aggregate appears to be yes. A firm that is both profitable and holding a larger cash cushion is generally better placed to weather higher interest costs than one relying on borrowing to stay afloat.

That does not mean every small business is comfortable. Averages and shares can mask significant differences, and the FSR itself was explicit that stress remains elevated in hospitality, construction and transport. It also said the administration of one major builder is expected to cause a temporary spike in insolvencies in the September quarter.

A resilient business sector also depends on lenders being willing to keep extending credit, particularly to smaller firms that rely on bank finance. On that front, the FSR was confident: "Australian banks are well positioned to continue lending, even in a downturn". The Review's overall verdict on the system was: "Australia's financial system has a good degree of resilience, but global and operational vulnerabilities continue to mount".

The pressures firms are absorbing

The RBA has been clear about the headwinds. On 29 September, the Monetary Policy Board raised the cash rate target by 25 basis points to 4.60 per cent, the fourth increase in 2026.

"I know this decision is difficult for households with a mortgage and businesses with loans," Governor Michele Bullock said at the media conference that day.

Costs are also rising. The Board's statement said: "Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation." It added: "Higher fuel prices have partially been passed through to prices of other goods and services."

On the demand side, the statement noted: "There are signs that growth in consumer spending is easing gradually as expected." For small firms that depend on household spending, slower growth in customer demand is part of the operating environment.

At the same time, the Board observed that "Growth in business investment and debt is strong", suggesting many firms are still confident enough to invest.

A change at the checkout

Small businesses that accept card payments are also adjusting to regulatory changes that took effect on 1 October 2026. Card surcharges were removed on the designated networks eftpos, Mastercard and Visa, covering debit, credit and prepaid cards. American Express "has also decided to remove surcharging from 1 October 2026".

According to the RBA's conclusions paper, 16 per cent of merchants surcharged in 2024/25, while a majority of small merchants, 85 per cent, did not surcharge at all. In other words, most small merchants were not adding surcharges at the checkout even before the change took effect.

The same reforms lowered the caps on interchange fees, with card issuers' interchange revenue expected to fall by an estimated $660 million a year. The consumer credit cap fell from 0.8 per cent to 0.3 per cent, while the debit and prepaid cap was cut from 10 cents or 0.2 per cent to 8 cents or 0.16 per cent. Businesses can still offer discounts for particular payment methods, and costs can be "reflected in a business's overall pricing".

Card networks and acquirers are due to publish their first cost-transparency reports by 30 October 2026, covering 1 July to 30 September, and enhanced merchant statements begin from 1 April 2027. Governor Bullock said surcharging was no longer serving its purpose, and that card costs, like electricity and wages, are built into the price.

The bottom line

The October FSR found more small and medium-sized firms were profitable in late 2025 than before the pandemic, with many holding cash buffers above longer-run averages and corporate leverage stable. That cushion sits alongside insolvencies that have settled around their longer-run average, despite higher rates and energy costs. Stress remains elevated in hospitality, construction and transport. What to watch: the September-quarter insolvency figures, the first card-cost transparency publications due by 30 October, and the Board's next decision on 3 November.