Data from the Alares Credit Risk Insights report indicates that since 2019, non-bank lenders have steadily increased their court recoveries, reaching record levels by 2025. This trend contrasts sharply with the major banks, whose court activities peaked in 2024 before declining in 2025. This divergence suggests a strategic shift in how different types of creditors are managing defaulting loans.
Andrew Spring, a partner at Jirsch Sutherland, observes that while overall enforcement pressure hasn't decreased, its source has shifted. Non-bank lenders are now more aggressively pursuing legal actions to recover debts, a move that reflects their growing prominence in the SME lending market.
Several factors contribute to this trend. Non-bank lenders often provide more flexible lending criteria and faster approval processes, making them attractive to SMEs that may not meet traditional banks' stringent requirements. However, this flexibility can come with higher interest rates and less lenient repayment terms, increasing the risk of default.
For SMEs, this shift underscores the importance of thorough financial planning and understanding the terms of any loan agreement. Engaging with financial advisors and exploring debt consolidation options can provide pathways to manage existing debts more effectively and avoid the severe consequences of insolvency.
As the financial landscape evolves, both lenders and borrowers must navigate these changes carefully. Non-bank lenders' increased legal actions highlight the need for SMEs to be vigilant in their financial management and proactive in seeking solutions to financial distress.
