Higher operating costs and borrowing expenses are testing smaller Australian businesses, with the pressure falling unevenly across industries.

The Reserve Bank of Australia’s October Financial Stability Review, released on 1 October 2026, finds that most businesses remain capable of managing elevated costs. However, that resilience sits alongside more difficult conditions in vulnerable sectors.

Energy Costs Reach Beyond the Fuel Bill

Transport businesses face direct exposure to higher fuel prices. Other firms feel the impact through freight charges, materials and supplier invoices.

The RBA identifies smaller firms and energy-intensive industries as particularly exposed. Businesses operating on thin margins can struggle when customers resist price increases, leaving them to absorb more of the additional expense.

For an individual operator, the problem is often timing. Suppliers and lenders require payment even when sales weaken or customers take longer to settle invoices. A Business can remain profitable on paper while finding it harder to meet its immediate obligations.

Smaller Borrowers Can Feel Rate Changes Quickly

The review notes that many smaller businesses use variable-rate loans, including facilities secured against an owner’s residential property. Higher interest rates can therefore reach their Cash Flow faster than they reach some larger companies.

Overdue trade Credit also points to greater pressure among smaller firms. Construction, hospitality and retail remain areas of concern as rising costs meet uncertain demand.

Insolvencies Tell Only Part of the Story

Company insolvencies relative to the number of operating companies had eased towards their longer-run average, but remained elevated in hospitality, construction and transport.

These figures lag trading conditions. They cannot yet capture the full effect of newer pressures. The RBA nevertheless assesses the financial stability risk as contained, partly because failed companies have generally been small or carried limited bank debt.

Cash Buffers Provide Some Protection

Many businesses retain cash buffers above longer-run averages. Most lenders have also maintained their willingness to lend, although the review identifies some tightening in transport lending and private credit.

Those aggregate findings offer context, but a business owner’s position depends on available cash, repayment commitments and the reliability of incoming revenue.

A practical review starts with a cash flow forecast: when customer payments are expected, which expenses cannot be delayed and how much room remains if sales disappoint. Supplier concentration and the timing of Loan repricing also deserve attention.