Small business not 'losing out' on interest rates, says ABA

by Mackenzie McCarty01 Mar 2013
The latest RBA figures show the average advertised rate on a small business residential secured loan is 7.60%, compared to the average advertised standard variable rate for

a home loan, which is 6.45%.

“Today’s risk premium for small business is therefore, on average, 1.15%. This is higher than before the GFC. Over the three years leading up to the crisis, the small business residential secured loan rate averaged 7.73%. For a home loan, it was 7.50%. In other words, the gap

has grown from 0.23% to 1.15%, an increase of 0.92%. This increase was not a gradual change, it all happened over two months in late 2008, at the height of the GFC.”

Münchenberg says the gap between home and business loans has grown with the change in capital rules and risk re-pricing, reflecting the reality that small business lending is ‘riskier’ than home loan lending, even when small business owners puts their houses on the line.

“Small businesses do pay more than home borrowers for their credit, but not because the media and politicians have neglected them. Basically, lending to small businesses is riskier, so small businesses pay more.”

The latest figures from the Reserve Bank show the average advertised rate on a small business residential secured loan is 7.60%. This compares with the average advertised standard variable rate for a home loan of 6.45%. Today’s risk premium for small business is therefore, on average, 1.15%.

This is higher than before the GFC. Over the three years leading up to the crisis, the small business residential secured loan rate averaged 7.73%. For a home loan, it was 7.50%. In other words, the gap has grown from 0.23% to 1.15%, an increase of 0.92%. This increase was not a gradual change, it all happened over two months in late 2008, at the height of the GFC.

The gap between home and business loans has grown with the change in capital rules and risk re-pricing, reflecting the reality that small business lending is riskier than home loan lending, even when small business owners puts their houses on the line.

Small businesses do pay more than home borrowers for their credit, but not because the media and politicians have neglected them. Basically, lending to small businesses is riskier, so small businesses pay more.


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COMMENTS

  • by Mike C 1/03/2013 7:23:35 PM

    All very well & good Munchenberg & well explained. I do not disagree. So answer this why in hell do many lenders still take on business debt refinancing it priced at resi rates, sometimes at 100% of the refinance amount, under policy! (rhetorical) I'll tell you why; because 'sales & marketing' & employee targets overide the correct & appropriate risk analysis. All that is washed away with a simple restructure, regardless of whether the SME is experiencing current liquidity problems or declining profit margins. eroding equity etc etc.