Westpac has cut rates on small business loans in order to support growth during the economic recovery from the COVID-19 pandemic.
The major bank slashed nearly 50 basis points off loans offered through the federal government’s small and medium enterprises (SME) guarantee program, according to a report by news.com.au. The scheme was launched last year to provide cheaper funding for businesses.
Three-year unsecured fixed loans will drop from 4.48% to 3.99%. Secured, variable-rate loans of up to five years have been slashed by 10 basis points to 2.99%. Three- to five-year fully secured fixed rates are at 2.38%.
Westpac business bank executive Guil Lima told news.com.au that firms should take advantage of cheaper credit to invest in strategies that would spur growth beyond the expected recovery period from the pandemic.
“It’s pleasing to see such positive indicators the economy is starting to recover, and there’s a clear opportunity for some businesses that may be in a position to invest for future growth, which many are telling us they are looking to do,” Lima said.
The federal government guarantees 50% of the loans on issue and is supporting nearly $40 billion in lending to small businesses, news.com.au reported. Borrowers are able to access up to $1 million for loans of up to five years.
Lima said that Australia’s efficiency at containing the spread of COVID-19 has put it in a stronger economic position than much of the rest of the world. Westpac anticipates that agriculture, health and companies looking to expand digital services are likely to benefit from an increase in domestic investment and cheaper lending rates.
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“I am really bullish on Australia,” Lima said. “I think the recovery being much faster than the rest of the world is going to have a lasting and positive impact.”
While access to SME guarantee loans ends June 30, Westpac predicts that small-business lending rates will stay low, as the Reserve Bank intends to keep the cash rate at 0.1% until at least 2024. The average life of an SME loan on Westpac’s books is about three years.
“If the direction was 12 months there would be a lot more uncertainty,” Lima told news.com.au. “Then if you look at the average loan term our customers ask for, it is around three years, so that gives customers an opportunity for a whole loan cycle with a lower interest rate.”