BOTH small and large businesses have fared well from changes in the official cash rate over the past decade with strong competition among lenders keeping a lid on rate movements.
The exception was the period immediately after the global financial crisis, when banks clawed back profit margins in business lending by not passing on cuts in the official rate.
As National Australia Bank and ANZ Banking Group cut mortgage rates and some small business lending rates yesterday, Reserve Bank of Australia figures showed lenders did not always fully pass on cuts in official rates to small businesses. But they had not lifted rates by as much as the cash rate either.
From mid 2001 until 2008, the cash rate, which is used as a benchmark to price loans, rose by three percentage points while small business loans rose by 2.8 percentage points, and big business rates increased by 2.15 percentage points.
Once the Reserve cut the official rate after the financial crisis, lenders failed to pass on the full drops to business. And, as the rate cycle turned in mid 2009, big business ended up relatively better off than small business.
But small business lending rates, as measured by the RBA, remain well above big business and mortgage rates. Before yesterday's reductions, small businesses were paying about 8.6 per cent on loans while big business was paying 6.5 per cent. This compares to the standard variable rate on a home loan of 7.55 per cent, and credit card interest rates of about 19.70 per cent.
An ANZ spokesman, Paul Edwards, said there were three key variables in pricing small business loans.
''Funding costs - what we are paying for deposits, plus domestic and international wholesale funds. There's a price for risk and there's the competitive environment.''
He said that before the financial crisis, the price for risk was too low. There was now upward pressure from funding costs and risk pricing, and downward pressure from the competitive environment.
The executive director of the Council of Small Business of Australia, Peter Strong, said banks were using the same collateral as five years ago, so there was little reason for the spread between the cash rate and the business rate to blow out. But he said the relationship between the banks and small business was better.
''Up until last year, the engagement with the banks has been terrible. This year the engagement has been pretty good; next year will be a year of conversion,'' he said.
''Banks are communicating better and there's a better understanding of products we need and the needs of different parts of the sector.''
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