Rates Hike For Australian Business Lending

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March 22, 2008 by Angela Shupe | 0 Comments

MySmallBusiness:

A leading banking analyst has warned small businesses could end up paying higher interest rates to cover the banks’ losses in home and corporate lending.

JPMorgan’s Brian Johnson says small business could pay 3% more than the 90 day bank bill swap rate, if mortgage stress now being
experienced by the non-bank lenders spreads to the big four Australian banks.

“It is going to cost a lot more to get debt. Only companies who have robust plans to support much higher interest costs will get [loans],” Johnson says.

Gerard Minack, from Morgan Stanley, says the impact of the credit crunch in Australia is still ahead of us and will be most intense in the SME and household sector.

“We will start to see credit problems [at the big four banks] when there are job losses. [Then] all hell will break loose,” Minack says.

Minack says the banks funding model is retarding their ability to lend.

“The structural vulnerability [of the banks] has boiled down to the peculiar funding of our banking system – so dependent on wholesale money, so dependant on offshore. And the fact they have funded an unsustainable consumer boom intertwined with an unsustainable boom in
housing.”

If things keep going the way they currently are in Australia, it looks like getting a small business loan will be nearly impossible or will cost much more than it does now to pay back. This might be a good time to consider some other way to borrow the money needed to start up a small business.