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Businesses hit by widening rate gap

by Staff Reporter11 minute read
The Adviser

Steven Cross

Softening competition in small business lending is driving a gap between residential and business interest rates.

The major banks' average rates for secured small business loans have fallen by 100 basis points to 7.53 per cent, while residential mortgage holders received a 103 basis point drop, with the average SVR sitting at 6.76 per cent.

RateCity spokeswoman, Michelle Hutchison, said dwindling competition in business lending may have contributed to the widening gap.


''Higher risk often brings higher costs, so it makes sense for interest rates to remain high for variable business loans compared to variable home loans,'' she said.

ANZ told a Senate inquiry last week that the number of small-business borrowers falling behind was continuing to rise, while the Reserve Bank said small businesses lending rates had been hit the hardest by the increase in bank funding costs in recent years.

RBA figures show the difference between the cash rate and small business rates is at its highest level since 2008, when competition in the market dried up.

Despite many small businesses facing weak conditions, Westpac has made a recent play for the sector to compensate for weak housing lending, passing on all 75 basis points in official cuts this month and last.

But this has failed to prevent widening between small-business rates and the rest.

NAB has the lowest rate among the big four, but RateCity figures show it has passed on the smallest share of the cuts since November, at 89 basis points of the 125 points in official cuts.

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