Why 2020 could be the best year to take out a business loan
Wednesday 08 January 2020
For many Australians, January presents the perfect time to take control of their finances and set goals for the year ahead. And given the year of financial flux that was 2019, plenty of Aussie businesses and households are likely only just catching up now.
With three Reserve Bank rate cuts in June, July and October, interest rates across a number of consumer financial products including home loans, personal loans, savings accounts and term deposits fell sharply in the second half of 2019.
But did 2019 provide any good news for Australian businesses looking to secure some extra funding in 2020 by way of a business loan?
Australian businesses rely on additional funding to cover a range of needs, with recent data from the Australian Bureau of Statistics revealing that businesses took out $872 million in new lending in October 2019 alone and over $9 billion for the year to October 2019.
Well, a combination of historically low interest rates plus the increasing competition in the business lending sector could make 2020 one of the best years yet to take out a business loan. Here’s a quick breakdown.
Further cuts to business loan rates
With the official cash rate dropping from 1.50% to a historic low level of 0.75% in 2019, it perhaps won’t be a surprise to learn that business loan interest rates also decreased over the past year.
In fact, the average interest rate of the 11 business loans on offer from major and challenger banks being tracked in the Mozo database dropped by 0.45% - from 5.52% on January 1, 2019 to 5.04% on January 1, 2020.
2019 was simply representative of a longer trend that correlates with Reserve Bank interest rate cuts over recent years though.
As the chart below shows, since Mozo started tracking business loan rates back in 2011 the average rate in our database has maintained a relatively consistent downward trajectory. The exception is a period between 2017 and 2019 which coincides with a lack of movement on the official cash rate from the RBA.
As a result, and with interest rates at comparatively low levels, 2020 could be one of the best times in recent years for businesses to borrow money in Australia. And the landscape could improve even more in the coming months for businesses looking to borrow money if the Reserve Bank decides to pull the rate cut trigger again.
According to Mozo Banking Expert, Peter Marshall, there’s a realistic chance that the RBA may make a move at their first meeting of 2020 on February 4.
“A 0.25% interest rate cut in February from the Reserve Bank certainly isn’t out of the question. I wouldn't expect the majority of banks to pass on any cut in full though, with a 0.10% or 0.12% cut the more likely option my opinion,” he said.
Apart from falling interest rates, one of the largest changes to the business lending landscape in Australia in the last decade has been the emergence of a number of new challenger and online lenders.
Online lenders like Capify, Prospa and Moula have all sprung up in recent years and found success by offering businesses faster funding processes and less stringent application requirements among other factors.
Challenger bank Judo Bank, which was only founded in 2016, has also found success in the business loans space by targeting small and medium-sized businesses.
While these newer players still represent a relatively small share of the market, particularly compared to the big four banks, the growing awareness of these lenders as a viable option among Aussie businesses was born in a recent report.
According to the Australian Banking Association’s 2019 SME Lending Economic Report, Australian businesses approached ‘finance companies’ 37.4% of the time when looking for finance compared to 64% of the time for banks.
Small businesses were even more likely to approach finance companies, with businesses employing 0-4 staff approaching finance companies 42.4% of the time compared to 56.6% of the time for banks.
The same report also showed an encouraging sign for businesses looking for finance, with 94% of small business loan applications approved by banks in the study.
Ready to start 2020 by finding a business loan to match your business needs? Check out some of the hot offers in the table below, or browse through a number of offers from both banks and online lenders using Mozo’s dedicated business loans comparison tables.