Small Business owners cautious amid rates rises IMAGE Freepik
Small Business owners cautious amid rates rises IMAGE Freepik
  • 26% of SMEs would not take out a loan to grow their business if interest rates hit 7%.
  • If rates were to rise to 10%, 50% of SMEs would refuse to take out a business loan.
  • According to the study of 210 business owners, SMEs make up 98% of all businesses.

Small and medium-sized enterprises (SMEs) in Australia are becoming increasingly cautious about taking out loans as interest rates continue to rise, according to new research.

Research from Small Business Loans Australia found that 26 per cent of SMEs would not take out a loan that could grow their business if interest rates hit seven per cent.

If rates were to rise to 10 per cent, 50 per cent of SMEs would refuse to take out a business loan.

The study also found that 64 per cent of business owners would not take on a loan at an unfavourable rate, regardless of whether such a decision would stunt their business’s growth.

Line in the sand on interest rates

Alon Rajic, founder and director of Small Business Loans Australia, said, “This year could be a period of growth for businesses in many sectors, which in many cases will require a business loan.

“Most SMEs have established a clear cut-off point where interest rates will become too difficult to manage, which is imperative when choosing any loan.

“However, there is always a variety of different interest rates available across lenders, and business owners should make sure to shop around and use a comparison service before taking out any new loans” he said.

The study also found that 36 per cent of micro-businesses would stop borrowing when interest rates reached seven per cent, compared to 17 per cent of medium-sized and large businesses.

Only 3 per cent of small businesses would be deterred from acquiring a loan at an interest rate of seven per cent or higher.

Small business owners from Queensland (33 per cent), South Australia (32 per cent), and Victoria (31 per cent) would be most deterred from obtaining a bank loan at an interest rate of 7 per cent or higher.

While only one in five (20 per cent) respondents from New South Wales, Western Australia, and the ACT indicated interest rates above seven per cent would stop them from taking on more finance.

Protecting growth

The research comes as Australia relies on successful industries to continue their growth to protect the economy from a looming recession.

According to the study, SMEs make up 98 per cent of all businesses, however, with smaller budgets, they generally require finance to enter periods of growth and they will need to be increasingly cautious in the current economic environment.

The survey was based on responses from 210 business owners and senior decision-makers from a range of small businesses across Australia and sought to determine whether rate rises would deter Australian businesses from using the big four banks.

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