Banks will lower pricing in fight for SME market: Expert

Business borrowers are expected to benefit as lenders get serious about improving the competitiveness of their pricing, according to a financial services expert.

Peter Arnold, analyst with financial services research firm Canstar Cannex, says residentially-secured business loans have become more competitive relative to home loans compared to two years ago.

Arnold says while business lending is still more expensive than standard variable loan rates, and probably will be for some time, conditions have improved.

“For two years, there was not much advertising on price. Most advertising was serviced-based,” Arnold said.

“But over the last six months, we’ve seen the occasional ad based on competitive pricing.”

“So banks are starting to get competitive and get serious about pricing.”

According to Canstar Cannex research, in January last year there was a 1.6% margin between business loans and standard variable loans.

This contracted to just above 1% last year, and the early stages of 2011 reveal the margin has fallen to 0.88%.

Arnold attributes the narrowing of the gap to an improvement in business conditions, an opening up of wholesale funding markets, and the availability of more affordable funding.

The re-emergence of competition may also have had an impact, Arnold said, with many businesses now sourcing funding from overseas after offshore lenders fled Australia during the GFC, with lending by small banks well below its 2008 peak.

Arnold singles out the Commonwealth Bank of Australia for keeping their business loans closer to home loan rates and Reserve Bank official rates than other big lenders.

Canstar Cannex cites RBA figures showing the big four banks account for about three-quarters of lending to unincorporated business, and about 70% of total business credit.

According to its report, Bankwest’s Business Bonus account, IMB’s Business Cash Management Account, Newcastle Permanent’s Business Cash Management ACcounts and Westpac’s Business Flexi topped the business cash management category, labelled “outstanding value.”

For overdraft loans secured by residential property, big four banks ANZ and Commonwealth dominated. ANZ’s Business Overdraft and ANZ’s Business Overdraft and Business Line of Credit were rated “outstanding value”, as well as Home Building Society’s Business LOC.

In the term loan category, ANZ’s business Loan Variable, CommBank’s BBL Variable Residential Secured and its BetterBus Loan Residentail Secured – Fixed, Home Building Society’s Commercial Loan, and Westpac’s Bank Bill Business variable came out on top.