And will they postpone borrowing if this means their businesses will not grow?
A quarter of SMEs (26%) won’t take out a loan for business growth if rates hit 7%, which has already been surpassed by a number of major banks.
This was according to an independent survey commissioned by loan comparison site Small Business Australia, which sought to discover whether the rate hikes would deter Australian businesses from big four banks CBA, Westpac, NAB, and ANZ.
The report surveyed 210 business owners and senior decision-makers across the full SME spectrum: micro (1-10 employees), small (11-50 employees) and medium-sized (51-200 employees), as well as a small percentage of large SMEs (more than 200 employees).
Findings also showed that 50% of SMEs will refuse to take out a business loan if rates lift to 10%. Some 64% of business owners and senior decision-makers would not obtain a loan at an unfavourable rate, regardless of whether such a decision would stunt their business’s growth.
In 2018-19, 15% of businesses applied for finance, with 31% using the funds for general business growth. Some 69% of businesses borrowed their money from a bank and 33% from another lender.
What interest rate will turn SMEs off from getting a loan?
When asked what level of interest rates would turn them off from obtaining a loan from a bank:
- 26% of the respondents said an interest rate of 7% would deter them from acquiring a loan, while 14% said they would avoid borrowing at an interest rate of 8%
- 10% said their limit was 10%, while 24% will cease taking out loans when interest rates reach 10% or higher
- 8% would continue to borrow funds from the big banks, provided the interest rate remains at 15% or lower
Of all the micro-businesses polled, 36% indicated that they would cease borrowing when interest rates reach 7%, while 17% of medium-sized and large businesses said the same. Those figures were significantly less than just 3% of small businesses that would be deterred from acquiring a loan at an interest rate of 7% or higher.
Across all states, Queensland led those that would cease borrowing at an interest rate of 7%, at 33%. This was followed closely by South Australian and Victorian respondents at 32% and 31%, respectively. Meanwhile, 20% of respondents across NSW, Western Australia, and the ACT indicated the same.
Financing or growth?
When asked whether SMEs would still postpone borrowing even if it meant that their business would not grow, 64% said they would still not obtain a loan at an unfavourable rate, while the remaining 36% said they would get a loan to continue expanding their business.
The survey found that large businesses are more prepared to continue borrowing at high interest rates to enable business growth, with 67% of large business respondents indicating that they would obtain a loan at an unfavourable rate if necessary. In contrast, 70% of micro-businesses, 46% of small businesses, and 39% of medium-sized businesses said they would cease borrowing.
“Australian SMEs are showing promising resilience as interest rates continue to rise,” said Alon Rajic (pictured above), founder and director of Small Business Loans Australia. “This year could be a period of growth for businesses in many sectors, which in many cases will require a business loan. Most SMEs have established a clear cut-off point where interest rates will become too difficult to manage, which is imperative when choosing any loan. However, there is always a variety of differing interest rates available across lenders, and business owners should make sure to shop around and use a comparison service before taking out any new loans.”
To view the full survey results, including breakdowns across business sizes and states, click here.
Have a thought about the survey findings? Include it in the comments below.
