CommBank latest to raise business loan rates
As the Big Four raise rates, more small business lenders are coming onto the market.
Commonwealth Bank has raised interest rates for its business loans customers, joining "Big Four" rivals NAB, Westpac and ANZ. The rate hike comes as online small business lenders, including peer-to-peer (P2P) providers, are entering the market.
CommBank blamed the hike, which will see rates rise by up to 0.21 of a percentage point for a range of business loans, on an increase in funding costs and tougher regulations. NAB, which is Australia's largest business lender, increased its short-term borrowing rates by between 8 and 29 basis points, also citing increased costs. ANZ and Westpac raised their business rates by 0.21 of a percentage point and 0.23 of a percentage point respectively.
The rate hike for all four of the nation's largest banks was independent of a rate increase from the Reserve Bank. Glenn Stevens, Reserve Bank governor, questioned the justification offered by the banks for the increase in rates.
"I do not see much of a case for independent increases in lending rates based on funding costs as they have evolved just lately," he said.
As the larger banks increase their rates, smaller lenders are offering better applications and more transparency. Innovative processing means more flexible eligibility for businesses that may not have been eligible with traditional lenders.
Peer-to-peer business lenders such as ThinCats, FundX and Marketlend offer a new way for borrowers to find finance, while online small business lenders such as SpotCap, Max Funding and Banjo Loans can let SMEs access loans more quickly and that they may not have been approved for at a bank.
The majority of these lenders operate online, helping them to keep costs low. The reliance on big data and other sources to analyse applications, such as social media, helps to keep default rates low.
The cost structure for business loans is usually the same as banks, with the rate being applied according to the customer's application. However, there is a higher degree of transparency. A quick look through FAQs and you can usually find fee statements, terms, interest rate ranges, and for some lenders you may even find a standard rate.
Banks are only now playing catch-up in the personal finance space, partnering with fintechs to offer better customer experience to match and exceed what is offered by fintech lenders. What the domino effect of the business interest rate rises shows to consumers is that they only see each other as cost competitors, but it may not be long before they are playing catchup in this area as well.