Small business failure risk in Australia is increasing at a faster rate than the pace of overall business growth, with micro-enterprises and recently established firms most exposed to these pressures, according to newly released data from credit bureau illion, an Experian company.

The findings are based on analysis of more than 2.5 million active Australian businesses and present a detailed snapshot of rising vulnerability, especially among companies trading for fewer than six years with annual turnovers below AUD $10 million.

Pace of risk outstripping growth

According to the report, the number of businesses at moderate or higher risk of failure rose by 4.5% over the past nine months, which outpaced the 2.9% increase in the number of actively trading businesses during the same period. The data also highlights that risk is most acute among smaller, younger firms. Notably, 8% of micro-businesses – those with a turnover under AUD $500,000 and trading for fewer than six years – are now considered at very high risk of failure in the next 12 months. This is four times the rate observed among more established peers of similar size.

The commercial barometer’s risk levels mirror growing pressures amid changing consumer spending, shifting export conditions, and persistent inflation-related cost increases for many businesses.

Industry trends

Some sectors that previously exhibited stability, such as Manufacturing and Wholesale, are now showing initial signs of stress alongside industries already facing significant challenges, including Hospitality, Retail, Transport, and Construction. The moderation of retail demand, as well as a subdued outlook for exports due to ongoing global trade negotiations, are shaping the business environment for the second half of 2025.

Among sector-specific findings, Financial Services recorded a rebound with a 1.8% improvement in risk scores during the June 2025 quarter. This was attributed to rising demand for credit, spurred by declining interest rates and increased activity in life insurance, as more consumers take on additional risk exposure.

Mining continued to demonstrate stability, particularly in mining services and resource extraction, although there was some moderation in metal ore export growth due to variable global demand.

The Transport sector was characterised by divergent trends: insolvencies spiked by 15% and delays in trade payments increased by 10%, mainly as a result of reduced demand for parcel delivery. In contrast, rail and road freight volumes climbed by approximately 20%, largely driven by increased agricultural product movements.

Hospitality, Retail, and Construction all experienced a renewed uptick in risk. Hospitality saw a 15% rise in insolvencies alongside a 25% decline in new business incorporations. In the Retail sector, insolvencies increased by 36%, while in Construction, the figure was up by 13%. New business formation slowed, with Construction seeing 10% fewer incorporations compared to peers.

Pockets of Manufacturing and Wholesale, traditionally seen as lower-risk, reported weaker growth, particularly among businesses supplying the construction industry. Manufacturing firms tied to building supply chains recorded growth approximately 30% lower than the broader sector, with key drivers being reduced demand for materials and ongoing high construction costs.

Within health services, core areas such as hospital care, pharmaceuticals, and residential care are continuing to expand rapidly. However, allied health services, such as physiotherapy, optometry, occupational therapy, and pathology, are expanding more slowly, potentially indicating self-management of less severe health issues as Australians respond to budget constraints.

Sector resilience

Despite these pressures, the report notes ongoing resilience within the Agriculture, Mining, and Financial Services sectors, which has tempered national risk levels. These sectors continue to perform steadily, helping to balance headwinds faced elsewhere in the economy.

Barrett Hasseldine, Head of Modelling at illion, said the data reflects a market in transition. “After a strong run, we’re now seeing business conditions diverge. Some industries are maintaining momentum, but others, particularly the smaller and younger operators, are beginning to feel the pinch. The next few months will be important to watch as global trade settings, consumer sentiment and cost pressures evolve.”

The Commercial Risk Barometer, compiled by illion, tracks the probability of business collapse within the forthcoming year due to financial stress. It utilises proprietary commercial databases evaluating legal actions, debt collection patterns, trading activity, industry-specific risks, and the credit profiles of business owners and directors. Changes are measured against a January 2023 baseline using a three-month rolling average to smooth out short-term fluctuations.

This approach is designed to provide businesses and financial stakeholders with early visibility of trends and potential risks emerging in the Australian market as macroeconomic conditions evolve.