John Durie: For the first time in decades, small business lending is outpacing home loans

As home owners continue to face interest rate hikes, small business lending has powered ahead of home mortgages as the boom growth area for banks.

For the major lenders, the increase in loans up to $30 million for small and medium-sized business is running at annual growth rates above 8%, compared to 6% for home loan growth.

This is the first time small business lending has outpaced home loans as the drivers of volume increases for the banks for several decades.  

However, Judo Bank chief executive Joseph Healy told SmartCompany, “the big question is whether the loan growth will hold up and the evidence so far is mixed”. 

NAB reports present conditions for small business are still strong.

The boom in small business lending has driven a race for talent among the banks looking for more lenders.

Commonwealth Bank has taken the fight to NAB to try to take its mantle as the top business lender and the increased loan growth, combined with market share battles between the banks, has resulted in higher staff costs.

In the last six months, Shayne Elliott’s ANZ has also joined the war for talent, which has seen small business lender wages at the bank increase up 20% or more in the last year.

According to Healy, a banker who would earn $160,000 a year ago is now earning more than $200,000 a year.

Judo Bank has increased lending staff numbers to 130 people, up from 85 a year ago, while NAB has increased its staff of small business lenders by 550 people in the last 12 months alone. 

The growth in small business loans in part reflects a COVID-19 bounce back.

The latest NAB business survey shows small business confidence remains high, but it is down from recent peaks. This is echoed in comments from NAB business banking boss Andrew Irvine, who told SmartCompany Australia “continues to do well in comparison to other countries across the global” given the low unemployment levels and continued strong demand for business services.    

“The majority of businesses I speak to continue to remain resilient as the impact of higher interest rates are felt,” Irvine continued.

“There are of course specific industries and individual circumstances where there is challenge as you would expect, however broadly, business continues to be in good shape. Of greater challenge, business owners are suffering with labour shortages and it’s great to see the government agree to boost the permanent skilled migration cap to 195,000 places to help in this regard.”

NAB chief economist Alan Oster explained in a statement accompanying the latest survey that “the fall in confidence came despite improvement in conditions”, with SMEs of all sizes reporting conditions improving in the second quarter of the year.

“SMEs in accommodation, cafes and restaurants saw a dramatic improvement in conditions, surging from a deep negative in the Omicron-affected Q1 to a strong positive level in Q2, and most other sectors were higher,” he said.

However, Oster highlighted that SMEs across the board “continue to face very elevated cost pressures, putting margins under pressure and pushing firms to increase prices”. 

“The pressure on margins is likely contributing to softening business confidence as firms consider how to remain profitable in a difficult set of circumstances,” he added. 

But while it lasts, it’s boom time for small business lenders.