Australian SMEs opt for non-capital spending amid rising costs
Australian small and medium-sized enterprises (SMEs) are shifting their focus from large-scale capital investments to faster, lower-risk non-capital investments in the 2025–26 financial year.
Research commissioned by Small Business Loans Australia found that 91% of SMEs are planning to prioritise non-capital operational spending, compared to 76% who expect to make at least one capital purchase over the same period.
The survey, with responses from a nationally representative panel of 200 business owners and decision-makers, aimed to uncover the types of investments businesses are targeting for fiscal year 2026, alongside the internal and external factors influencing these decisions.
Non-capital focus
The findings indicate a notable preference for non-capital investments, with 35% of businesses intending to focus on employee upskilling and 31% considering the hiring of new staff. Other popular areas of non-capital spending include product or service development (23%), marketing and advertising (22%), and measures to improve customer experience (16%).
This approach is seen as a response to ongoing concerns regarding tight profit margins, cash flow constraints, and elevated energy costs that impact business certainty and risk appetite.
Capital spending trends
Despite the lean towards non-capital operational investments, 38% of respondents plan to invest in technology and IT hardware, making it the leading form of capital expenditure. Office furniture and fittings follow at 28%, which the report suggests may be linked to bringing employees back to physical workplaces.
Sizable capital expenditures such as machinery and equipment (22%) and motor vehicles (13%) are less common, as businesses exercise greater caution in decisions that commit significant financial resources for the long term. According to survey data, only 10% of businesses are investing in sustainable assets, which may be tied to energy efficiency compliance or initiatives.
Underlying economic pressures
The report notes several financial and macroeconomic pressures shaping these decisions. Among internal factors, narrow profit margins (43%), insufficient cash flow (26%), and the need to prioritise debt repayments (17%) are identified as the major barriers to more substantial capital investment. Externally, high energy costs affect 30% of respondents, rising interest rates impact 24%, and general economic uncertainty is a concern for 22%.
Australian Bureau of Statistics data supports these findings, revealing a 0.1% drop in private capital expenditure during the March quarter of 2025, led by a 1.3% decline in plant and machinery investment. Overall expenditure remains lower by 0.5% compared to March 2024, though projected aggregate business investment for this financial year is still forecast at AUD $155.9 billion.
Business sentiment
Business owners are making hard decisions about where to allocate limited funds – and our research shows there is a clear preference for investment that drives efficiency, customer acquisition and workforce capability. While they might not be prioritising big-ticket capital purchases at last year's levels, many businesses are still planning to invest in growth.
Alon Rajic, Founder of Small Business Loans Australia, highlighted how sensitivities to financial and economic shifts guide SMEs' investment choices. "Our research also revealed that the decision to invest in capital and the willingness to take risks is sensitive to internal and external pressures, the biggest being financial: limited finances, inflation and high interest rates."
On the balance between caution and opportunity, Rajic added, "The good news is that businesses aren't necessarily slowing down - they're choosing those investments that have faster returns and lower risk. Businesses are making more selective and considered decisions about how they'll grow this financial year."
The full survey results, which include state-level breakdowns, reflect a more cautious, selective investment environment as businesses seek to offset financial and market headwinds through targeted operational enhancements and workforce development.
