The May rate hike adds 0.25 per cent to the cash rate, which feeds through to most variable-rate SME lending products inside two to four weeks. The dollar impact on a $250,000 business loan over a 5-year term is roughly $30 to $35 a month. That number is real, but it is not the bigger story. Behind the headline rate, what changed materially in early 2026 was the risk appetite of the unsecured SME lenders. The result is a wider spread between products than the cash-rate move alone explains.
Unsecured SME: tighter approvals, wider rate band
Indicative unsecured SME term-loan rates for prime borrowers (3+ years trading, clean credit file, demonstrable cash flow) sit between 11.95 and 16.95 per cent in May 2026. That range was 9.95 to 13.95 per cent twelve months ago. Two things have moved. The base funding rate is up roughly 1.0 to 1.5 per cent over the year, and the credit overlay has widened by another 1.0 per cent on top. Lenders that previously approved on bank-statement-only documentation now want six-monthly BAS, P&L extracts, and in some cases director-guarantor verification.
Approval rates have also moved. Through 2025 the unsecured SME panel was approving roughly two-thirds of applications that met published eligibility. Through Q1 2026, the same eligibility filters are converting into approval at closer to half. The applications that fall out are the ones with shorter trading history, weaker bank-statement cash flow, or industries the lenders flagged as cyclically exposed (some hospitality sub-sectors, some construction).
Asset-backed and invoice finance: more resilient
Asset-backed business lending (commercial property, equipment finance, premium funding) has held up better. The asset itself reduces the lender's loss-given-default, and pricing has only moved with the underlying funding cost rather than with both funding and credit overlay. Indicative asset-backed term-loan rates for prime borrowers sit between 7.95 and 10.95 per cent in May 2026, up from 6.95 to 9.50 per cent twelve months ago. That is a 1.0 per cent move broadly in line with the cash-rate move.
Invoice finance has been the standout. The product is relatively short-tenure (typically 30 to 60 day exposure), the security is the underlying invoice rather than a balance-sheet covenant, and lender appetite was already low pre-2026 because supply of capital exceeds demand. Pricing is broadly unchanged year on year for prime debtors, between 1.0 and 2.5 per cent of invoice face value depending on debtor concentration and exposure period. For businesses with strong-debtor invoices and a working-capital squeeze, this is the cleanest product on the panel.
Line of credit and overdraft: the bank-product story
Major-bank business overdrafts have repriced with the cycle. Indicative overdraft rates sit between 11.50 and 14.95 per cent depending on facility size and security. The drawdown utilisation matters: most facilities have an unused-line fee even when undrawn, and the all-in cost of a partly-drawn overdraft can be higher than a comparable term loan if you are not actively using the line. For a business that needs episodic working capital but not permanent debt, the line of credit is the right product. For a business where the overdraft has effectively become a quasi-permanent term loan, refinancing into an actual term loan is usually cheaper.
What to ask before signing in mid-2026
- What is the comparison rate at my exact facility size and term, including all fees? Establishment fees on SME lending are higher than on consumer lending and can move the comparison rate by 0.50 per cent or more.
- What documentation will I need to provide on an annual review? Some products auto-renew on bank-statement evidence; others require full BAS, P&L, and director documentation each year.
- What is the security position, and is there a guarantee required from a director? Personal guarantees are common but not universal, and the wording matters.
- What is the early-payout policy? On term loans, fixed-rate break fees can be material; on overdraft and line of credit, exit is generally free.
- Is the rate variable, fixed, or fixed-with-review? Some SME term loans have a 12-month or 24-month review clause that lets the lender reprice without giving you the right to repay without break fee.
The product fit for a specific business is rarely the lender that advertises the lowest headline rate. It is the lender whose policy fits your industry, your trading history, your security profile, and the way you actually use working capital through the year. A broker who runs SME panel can place an application across multiple lenders without multiple credit enquiries; the value is in the matching, not the rate.