Stronger competition for loans is benefitting small businesses, according to new research from the Australian Banking Association. The battle between lenders to win the business of small-business clients is pushing down the real cost to small businesses of acquiring finance.
Improved Lending Conditions
The Australian Banking Association’s latest industry report focusing on small and medium businesses reveals that strong lending competition means the margin banks charge on small-business loans above the cash rate has fallen to a five-year low.
Forty per cent of small businesses have sought finance from their bank. Banks are providing record levels of lending, with the level of credit currently outstanding now standing at $750 billion. This is up from $567 billion in 2023.
New technology and systems have seen one in four small businesses experience faster approval times for credit. The underlying data shows average quarterly margins have narrowed by 39 basis points since peaking in late 2022, driven by increased competition between bank and non-bank lenders.
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Benefits of Competition
For an SME with a $500,000 loan, that narrowing translates to approximately $1,950 in annual interest savings. This equates to about two weeks’ pay for a minimum-wage employee. The report highlights the benefits stronger competition is offering small-business customers.
Simon Birmingham, ABA CEO, says that banks are competing hard to win small-business customers, which is translating into more competitive pricing for those businesses. This is competition working exactly the way it should, giving owners more choice about who they bank with and more finance to reinvest into their business.
Australia’s 2.7 million small and medium businesses are critical to the economy. They are being provided with the support they need to operate, to grow and employ more Australians.
Digitalisation and Risk
Two-thirds of SMEs surveyed say that they want interactions with their bank to be mostly, if not entirely, digital. Only one in 10 still prefer to do banking in-person. Most SMEs now have some form of online presence – through a website, social media or an online marketplace.
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However, that connectivity is exposing businesses to increased cyber risk. Research reveals that 62 per cent of businesses with 0–4 staff have an online presence. 84 per cent of businesses with 5–19 staff have an online presence. One in five businesses reported experiencing a cyber security incident.
Four in five businesses reported being exposed to a scam.
The trend towards digitalisation is here to stay, and with it, the need for small businesses to be aware of the risks and take steps to protect themselves. They must be aware of the risks as they use online banking and commerce.
Support in Troubling Times
Banks provide small-business customers with the payment infrastructure they need to operate, including important protections to prevent scams and fraud. Support isn’t just there for the good times, when the going gets tough, banks have dedicated teams to assist small business customers handle through harder economic conditions.
