Small business interest rates hit record low

Falling interest rate

RBA data reveals the average interest on small business loans is the lowest it has been since at least 1993, with owners paying $9 billion less than they were six years ago, according to the Australian Bankers’ Association (ABA).

Noting that small businesses are a significant driver of the economy, ABA Chief Economist Tony Pearson said anything that assists them is “good news.’

“Less interest paid by small business on their loans will help drive economic growth, create new jobs and tackle unemployment,” he said.

“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. Based on a loan of $100,000 that equates to an interest saving of around $3,000 per year.

“When you look at the bigger picture the story is even more positive. As of September, there were a total of $282 billion in outstanding loans to small businesses in Australia, and based on the lower rates, they’re now paying almost $9 billion less a year in interest compared with the same time in 2011.

“With two million small businesses in Australia, employing nearly five million people, we need to ensure this sector continues to flourish.”

Pearson told Dynamic Business that a major driver of the low interest rates was “the most competitive business loan markets we’ve ever seen” and this was resulting in “more money going back into the pockets of small business owners”.

“Lower interest rates mean additional cash flow, which means you can pay down the loan sooner or re-invest in your business,” he said.

Kevin Taylor, director at ProActive Chartered Accountants echoed Pearson’s comments.

“Every dollar saved means extra profits or a chance to help the business grow by reinvesting in new equipment or hiring more staff,” he said.

“While business interest rates are at record lows, electricity prices are at the other end of the scale. Higher electricity prices are a double negative for businesses, as they have to pay the bills and their clients have less money to spend on other things.”