Interest rate cuts favouring big business over small
Updated
Australian businesses are saving billions of dollars in interest on loans annually.
According to analysis of Reserve Bank data by the Australian Bankers' Association, small businesses are now paying $9 billion less in interest on current loans compared to the same time in 2011.
"The average interest rate paid on all current loans held by small businesses has fallen in the past six years from 8.40 per cent in 2011 to 5.30 per cent now," said the association's chief economist Tony Pearson.
"Less interest paid by small business on their loans will help drive economic growth, create new jobs and tackle unemployment."
Bigger businesses get better rate reductions
While small businesses experienced a 3.1-percentage-point fall in the average interest rate over the last six years, the relief for big businesses has been even more significant.
The ABA says the average interest rate for larger businesses has fallen from 7.10 per cent to 3.40 per cent over the past six years — or 3.7 percentage points.
That is a 52 per cent reduction versus the 37 per cent rate cut that smaller firms have enjoyed, and equates to an annual saving of $27.6 billion for big businesses — more than three times the savings going to smaller firms.
The comparatively bigger reduction in interest rates for big business loans comes down to market forces, according to Professor Richard Holden from the UNSW Business School.
"Small businesses are inherently more risky," he said.
"Those rates reflect a market view that big business loans have become less risky compared to small businesses loans.
"This could be for a variety of reasons to do with industry mix, international competition and regulatory factors."
While lower rates should have the same benefits to big and small business if all else is equal, Professor Holden said it is not a level playing field and even more modest rate cuts could provide a greater benefit to small operators.
"Since it is harder for small businesses to get capital, lower rates typically help them more," he explained.
Topics: banking, small-business, money-and-monetary-policy, economic-trends, australia
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