Fading economic conditions are starting to wear on smaller businesses, although most are on solid financial footing to ride out the coming slowdown.
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Small and medium sized businesses have observed a slowdown in profitability, employment and trading conditions.
Slower economic growth, including weaker consumer spending, is an intended consequence of higher interest rates.
While Australia will hopefully dodge a recession, several quarters of lower-than-normal economic growth are likely.
Commenting on his firm's analysis of small- and medium-sized businesses, NAB economist Alan Oster said it was not unusual for conditions to turn weak for smaller firms first.
A sharp drop-off was recorded in the big bank's business conditions index specific to smaller firms.
The index sunk 11 points to just one point, well below the long-run average of six.
By comparison, conditions for larger businesses are still OK as charted in NAB's more comprehensive survey of the private sector.
"Confidence has been negative for SMEs for a number of quarters now, similar to what we are seeing among larger firms," Mr Oster said.
He also said there were signs things would deteriorate for small firms, with forward orders in negative territory.
A fresh set of retail data will be released on Friday, which will be of interest for businesses concerned about consumers reining in their spending in response to higher interest rates and cost of living pressures.
An indicator that draws on Visa transaction data, released on Thursday, showed spending momentum falling across essentials and nice-to-haves in June.
Spending dropped across every category: discretionary, non-discretionary, fuel and restaurants.
Consumers spent much less on fuel, as prices at the pump dropped off steeply, but this did not translate to more spending on the other categories, as one might expect.
"This suggests that Australian households could be facing budget constraints," the report offered.
Despite clear signs of a slowdown, separate analysis based on Westpac's internal banking data suggests businesses, including smaller ones, are in a strong financial position.
As firms stare down the barrel of tougher times, they have strengthened their cash positions, paid down debts and started investing in their productive capacity.
"This robust starting point will give businesses the ability to better navigate the choppy water ahead and provide them with the best opportunity to be a part of the brighter story when the cycle turns and the good times roll again," the report said.
Australian Associated Press
