SME borrowers unlikely to get much relief from rate cut

The RBA board is almost certain to cut official interest rates when it meets next Tuesday, 7 October, but SMEs shouldn’t expect the cut to be passed through to commercial loans.

The RBA board is almost certain to cut official interest rates when it meets next Tuesday, 7 October, but SMEs shouldn’t expect the cut to be passed through to commercial loans.

Banking analyst Peter Arnold from research firm Cannex says banks are more likely to bow to the rising political pressure to cut mortgage rates well before they give business borrowers some relief.

“Passing it on to the Aussie battler first – it’s hard for anyone to criticise them doing that,” Arnold says.

He also says banks may also be nervous about increasing their exposure to businesses in the current climate. “It’s quite possible they’d perceive commercial loans as more risky than mortgages at the moment. They are very different types of lending.”

Business loan rates have increased sharply in the last 12 months. The rate on a commercially-secured overdraft has increase from 9.54% to 10.96% in the last year, while the rate for a commercially-secured term loan has jumped from 8.76% to 10.06%. The rate for a residentially-secured term loan has increased from 8.39% to 10.16%.

The RBA’s 0.25% rate cut in September had little effect on business loan rates, with a limited number of loan rates being trimmed.

“It wasn’t passed on like it was for residential mortgages,” Arnold says. “The cuts that did occur weren’t in line with the official cut and weren’t passed on straight away.”

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