Over the past few years, SME owners have become far more conscious of the cost of capital. Interest rates have climbed back up from their historic lows, lending criteria has tightened in places, and the days of “super cheap money” are well behind us.
But focusing purely on the headline interest rate misses the bigger picture.
In 2026, the cost of capital for small and medium businesses is shaped more by how financiers assess risk than by where benchmark interest rates sit. For franchisees and business buyers in particular, understanding this can be the difference between quickly securing the finance they need — or struggling to get a deal over the line.
Lending appetite hasn’t disappeared — but it continues to become more selective
The latest Australian Bureau of Statistics lending data continues ongoing demand for business credit, particularly for established trading entities and acquisitions. Similarly, Reserve Bank of Australia commentary notes that banks and non-bank lenders are still actively writing SME loans — but with a sharper focus on credit quality.
In practical terms, this means lenders are not avoiding SMEs, but they are often being more deliberate about which SMEs they support and how those facilities are structured.
For borrowers, that translates into a higher bar for preparation.
Cash flow is king (again)
One of the clearest trends financiers are seeing is a renewed emphasis on cash flow sustainability and resilience.
In the low-rate era, strong asset backing or rapid growth projections could sometimes carry a deal. In today’s environment, lenders want to see businesses that can comfortably service debt even if trading conditions soften.
For franchise businesses, this means:
- Demonstrating consistent historical trading, not just ‘best-case’ projections
- Explaining ramp-up periods and seasonality clearly
- Being realistic with add-backs, particularly for owner wages and one-off costs
From a due diligence perspective, buyers should be stress-testing revenue and cash flow assumptions well before approaching a financier. If sales slow or key expenses increase does the business still service its debt?
Financiers are certainly asking that question.
Management capability can materially affect pricing
Another shift that doesn’t get much airtime is how much weight lenders now place on management capability.
This isn’t always about formal qualifications. It’s about whether the borrower:
- Can demonstrate the experience needed to run a business
- Understands their numbers and key risks
- Has systems in place to monitor performance
In franchise lending, strong franchisor systems can help — but they don’t replace borrower capability. Lenders increasingly price risk not only on the business itself, but on the quality of the operator running it.
Well-prepared borrowers often find this reflected in:
- Better approval confidence
- More flexible structures
- Sharper pricing than peers with similar businesses but weaker presentation
Equity matters (even more than it used to)
Another consequence of higher capital costs is the renewed importance of equity.
Across both Australia and New Zealand, financiers are looking for borrowers who have meaningful “skin in the game”. This doesn’t always mean higher deposits, but it does mean:
- Sensible gearing levels
- Clear explanations for where equity has been invested
- Alignment between purchase price, valuation and funding structure
For business buyers, this is particularly relevant. Overpaying for goodwill or relying on aggressive earnings assumptions can quickly derail a funding application
Forecasting has to be credible — not optimistic
Most lenders will still ask for forecasts. What has changed is how sceptically those forecasts are treated.
Gone are the days when 15–20% annual growth projections sailed through with minimal scrutiny. Today, financiers want forecasts that are:
- Anchored to historical (or evidenced system) performance
- Supported by identifiable drivers (new sites, price changes, operational improvements)
- Conservative enough to withstand external shocks
In fact, a slightly understated forecast often carries more credibility than an ambitious one!
The NZ perspective: similar themes, same discipline
Across the Tasman, the themes are remarkably consistent.
Stats NZ business data and SME sentiment surveys show many New Zealand businesses remain cautiously optimistic — but equally conscious of cost pressures and margin compression. As in Australia, New Zealand lenders are active but disciplined.
For borrowers operating in either market, this consistency is helpful: strong fundamentals travel well. Weak preparation does not.
What SME borrowers should do now
For franchisees and SME owners considering finance in 2026, a few practical steps can materially improve outcomes:
- Get your numbers right early — accurate financials and sensible forecasts matter more than ever
- Be realistic about risk — acknowledging challenges builds credibility
- Understand your funding structure — not just how much you’re borrowing, but how the funds will be used.
- Prepare your story — financiers back people as much as businesses, make sure you’re telling your story.
The cost of capital may be a little higher than it once was, but access to capital remains very much alive for quality SME borrowers.
Those who adapt to the new lending environment — rather than wishing for the old one — are best placed to grow, acquire and build resilient businesses in the years ahead.
Phil Chaplin the Chief Executive Officer of the CFI Finance Group, a specialist finance company servicing the franchise, accommodation, and fitness sectors as well as small businesses more broadly across Australia and New Zealand.
Phil has over 20 years experiance in providing finance to businesses across Australia and New Zealand and has managed finance companies in the private and banking sectors, he is a former chair of the Equipment Finance division of AFIA.
