Lending wars spur SME spending spree

Interest rates on commercial loans are at all time lows according to business brokers, and firms are using the cheap rates to buy property, equipment and rivals.

Small to medium businesses are in a “never before seen position” to borrow at rock bottom interest rates as the bank battle to grow market share in the sector heats up.

Business lending brokers and industry insiders say that loans for commercial premises are now as cheap, or cheaper, than residential mortgages with property-linked variable loans now in the “sub 2 per cent” range.

Chris Hall, a former business banker who founded Blue Crane Capital four years ago to broker both commercial and residential loans, said interest rates were the best he’d seen in 15 years in the­ ­industry.

“With the cash rate so low and such high liquidity in the market, there’s a lot of competitive tension from lenders when we go out to market to tender for loans. So the pricing on interest rates are at all time lows.”

Smaller, non-bank lenders, were also dropping rates to stay competitive.

Businesses are snapping up the cheap debt with cashed-up owners in the market to buy premises in industrial parks or fringe office space. At Blue Crane, where the average loan transacted is $1-$2m, things had never been busier in terms of transactions.

Mr Hall said many of his clients had thrived during the pandemic and used the lockdown to strip costs out of the businesses and focus on core areas of profitability.

JobKeeper payments have also contributed with many firms able to shore up cash flow and improve balance sheets, placing them in a better position than pre pandemic.

“Businesses took the time to look within during Covid,” he said. “I think a few firms also built up rainy-day funds thanks to ­JobKeeper so balance sheets are looking a lot stronger than what they were on pre-pandemic levels.”

The record low rates are not just driving investment in property. Lending for business acquisition is also on the rise, with rates as low as 4-5 per cent, compared to 6-7 per cent pre pandemic.

“People are seeing opportunities in their own industries to buy competitors or expand their own business,” Mr Hall said. “There’s more appetite than ever for acquisitions and pricing is also the best I’ve seen.”

Not all banks are as willing to lend for business acquisition however, with the major banks’ main focus remaining commercial property lending. SME-focused Judo was the main player in the business acquisition space, but Mr Hall said CBA and NAB were looking to get back into the market, as Judo had sent up “something of a smoke signal” that was prompting the majors to fight for market share.

“The SME market is probably the largest in the lending space so the majors are looking at their credit processes and beefing up their teams,” Mr Hall said.

On the asset financing side, red-hot demand spurred by the instant asset write-off scheme announced during the pandemic and extended in the most recent Budget, was causing financing times to blow out by 50 per cent.

The level of activity was confirmed by NAB’s monthly business confidence data which showed the measure of reported capital expenditure climbing to a record 24 points – a year after it hit an all-time low of -35 points – pointing to an ongoing increase in business investment in the June quarter.

Asset finance broker Scott Rumble of Yakka Finance said businesses were scrambling to buy up machinery such as trucks, earthmoving vehicles and even cleaning equipment.

“We’re seeing rates in the mid to high 2s for equipment loans,” Mr Rumble said. “From our end, that’s amazing; it’s the lowest we’ve ever seen.”

The demand was particularly driving prices of used equipment and vehicles, as Covid-related delays to production and imports were preventing new stock coming to market.

Lenders were happy to finance second-hand purchases at low rates, reflecting the willingness of banks to build a competitive foothold in the sector.

“We got a client 2.75 per cent on a $49,000 loan for a used truck. That is outstanding,” Mr Rumble said.

With so many lenders ready to do deals, very few businesses had made use of the government’s SME Recovery Loan Scheme, with brokers saying the terms were more onerous.