SME Borrowing Costs Ease in 2025, but Middle East Conflict Clouds 2026 Outlook

Annual research from Linkflow Capital indicates a modest thaw in credit conditions for Small and Medium Enterprises (SMEs) in 2025, with the average borrowing rate easing to 8.18% from 8.47% the year prior. This slight decrease in interest rates offers a glimmer of relief for businesses navigating a complex economic landscape.

However, the research also highlights a significant divergence in loan processing times. While banks averaged 33 days for disbursement, non-bank funders were considerably faster, completing the process in just 7 days. This disparity is reshaping where SMEs seek financing, with many likely turning to quicker, albeit potentially more expensive, non-bank sources to meet their immediate needs.

Looking ahead, the outlook for 2026 is clouded by geopolitical uncertainty. The ongoing conflict in the Middle East presents a substantial threat, potentially disrupting supply chains, increasing energy costs, and dampening overall economic activity. This external factor could easily negate the positive trends observed in SME borrowing costs and disbursement times.

From a regional perspective, particularly in Southeast Asia, these trends are crucial. SMEs form the backbone of many economies, and their access to affordable and timely credit is vital for growth and stability. While the easing of borrowing costs is welcome news, the lengthening bank processing times and the looming threat of geopolitical instability demand careful monitoring and strategic planning by both businesses and policymakers.