SMEs' interest rates on the rise, report finds


An extraordinary 68.8 percent of SMEs say they experienced an increase in their loan interest rate over the past six months

An extraordinary 68.8 percent of SMEs say they experienced an increase in their loan interest rate over the past six months, according to East & Partners’ latest SME Banking report for April.

Conversely, during the same six-month timeframe, no SME interviewed reported a decreased lending rate.

The number of SMEs reporting an interest rate increase in East’s latest SME report is more than double the number that reported an increase 12 months ago and has occurred despite a series of rate cuts by the Reserve Bank of Australia.

"The bottom line is that funding is becoming more expensive for SME business bank customers despite a backdrop of central rate decreases and Federal Government rhetoric insisting that rate cuts be passed on to the customer," says Peter Drennan, East & Partners’ financial markets analyst.

The cost of credit, along with general confidence levels in the economy, is clearly having an impact on SME’s borrowing intentions at a time when the Government is trying to stimulate the economy.

The latest report shows that only 51.1 percent of SMEs are now looking to borrow in the next six months, a sharp decline from 12 months ago when 77.1 percent of SMEs were looking to borrow.

"The significance in the fall in SME borrowing intentions lies in the fact that the vast majority of these borrowings are used to fund business growth. Clearly, if intended borrowings are on the decline then growth is not possible for these businesses," Drennan saysd.

"For their part, SME businesses are watching with interest to see how their banks will react to both the political pressure on banks and the growing dissatisfaction amongst businesses from the small end of town. Many of these businesses are hoping these influences will soon bring about a change to funding conditions."

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