Small business owners are struggling under tighter credit conditions and higher interest rates, despite the improving economic outlook.
According to a report in today’s The Australian Financial Review banks are charging small businesses almost double the margin that large businesses pay over the official cash rate and well over double the margin charged to home borrowers.
Figures from the Australian Bureau of Statistics (ABS) show that the average cost of bank finance to small businesses in August was 7.2 per cent – 4.2 percentage points over the official cash rate.
With bank margins on mortgages rising back to pre-crisis levels, the federal government has warned the banks against moving their rates by more than the Reserve Bank of Australia’s (RBA) shifts to the official cash rate.
"I've made it very clear [that] the government expects the banks to behave in the way in which they should behave and the way in which they've traditionally behaved – that is, that they will pass on the official cash rate increase and no more," treasurer Wayne Swan said last week.
However, smaller business may receive no such luxury with the Commonwealth Bank of Australia’s (CBA) executive general manager of small business Symon Brewis-Weston saying business lending is kept entirely separate from mortgages.
“Unless you see some abatement in that wholesale funding marketing, whether it’s two or three months, you will see some place move beyond any move in the official cash rate,” Mr Brewis-Weston told the daily.
According to Mr Brewis-Weston, large businesses have lower lending rates because the companies can access money through equity markets by issuing commercial paper.
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