Speaking on the Mortgage Business Uncut podcast, of My Business’ sister publication, economist Christopher Joye said there are several factors which are combining to drive down the cost for SMEs to borrow funds needed to grow.
One, according to the economist and columnist, is the legislated $2 billion securitisation fund, which he labelled as “a terrific coup for small business”.
“One of the interesting things about the SME loan sector — and I think it is something north of $300 billion of SME loans outstanding — we haven’t been very good at basically selling portfolios of those SME loans to global investors,” he said.
“One of the reasons that home loan rates are so cheap is, there is a huge securitisation market, and since 2017, Aussie lenders sold more than $100 billion of residential mortgages to global investors — the Japanese, the Europeans, the US and domestic investors.
“That huge amount of funding, that capital, that money, is recycled back into new home loans and it keeps the cost of home loans low.”
The economist said that government backing of securitised SME loans will make them more attractive to global investors and hence bring more money into Australia.
That in turn, he suggested, will reduce the funding pressures on lenders that are recouped through the costs they pass on to borrowers.
“The government commitment to invest $2 billion into securitised SME loans will be regarded globally as a huge signal of support in relation to the safety, security and integrity of that asset class. And I think that will fuel a great deal of global investment,” he said.
“As that money comes into Australia, it will allow non-bank lenders and smaller banks, which can all participate in this program to offer cheaper SME loans, and I think that is going to be very positive.
“So, I expect SME loan rates to fall over time, as a margin to the RBA cash rate.”
Mr Joye also pointed to “tremendous competition in general” as another factor likely to drive down the cost of business loans.
“The Chinese and Japanese banks have definitely stormed the market in the last five or so years and are providing serious competition to the major banks,” he said.
“And we’ve seen a big reduction of the market share of the major banks of the business lending market and, over time, I think we should see more and more non-bank lenders participate in the SME loan market.
“We do see a lot of the non-bank lenders in the resi mortgage market as a result of securitisation... which is funded by global investors, and as global investors come into the Aussie small business loan market, I think we’ll see more non-bank lenders participate.”
He added: “I would think the digital banks are going to provide another source of potential competition.”