Westpac turns up heat on business overdraft
Westpac has announced a welcome reduction – and a simplification – to its range of business overdraft accounts.
Business lending rates, and particularly those available to the vital SME sector, have been criticised not only by customers, but also by the Treasurer Peter Costello as being too high.
The RBA has also pointed out in a recent monthly bulletin that although mortgage lending rates have fallen significantly over the past two years in the face of increased competition, business rates have not matched the reduction in mortgage rates.
In addition, the RBA noted that small and medium sized enterprises pay higher rates than big business. Given the size and security involved, this statistic is unlikely to change.
The average base business overdraft rate – the most expensive form of business bank finance generally available – from the big four banks is just over 8.75%. Added to that figure are application fees, plus a risk margin of up to 5%, and line fees of 1% or more in many cases.
This makes it difficult for even the best of small or medium business to borrow using an overdraft or flexible line of credit at less than 10%, with many paying 12% or more.
In the past many business owners have objected to having to provide the family home as security for their business borrowings in spite of one of the major arguments for the high cost of business banking being the greater risk involved.
Westpac’s Business Options Overdraft
Westpac’s new business overdraft package, called the Business Options Overdraft, has not only reduced the base rate on its overdrafts to 7.2%, but simplified the structure of the risk margins to reflects the actual security provided.
Borrowers providing residential real estate as security for their business overdraft pay no risk margin, with service fees adding between 0.84% and 1.15% to the base rate of 7.2%.
Overdrafts secured by non specialised commercial property attract a risk margin of 0.75% plus service fees, whilst those secured by business assets, which include stock, debtors, plant and equipment, specialised commercial property (including rural) have a risk margin which averages between 1.6 and 1.8%.
On a typical $100,000 loan the figures are as follows:
|Bank||Security||Base Rate||Risk Margin||Line Fees||Total Rate||Application Fees|
|Westpac||Non specialised commercial property||7.20%||0.75%||0.84%||8.79%||$750|
-Stock, debtors, plant & equipment, specialised commercial property and rural property.
|7.20%||Range 0.0%- 2.6%|
Other features of the package include the following:
Minimum loan size: $20,000
Maximum loan size: None
Legal Fees: Only if assets in Trust or complex corporate structure
Valuation Fees:At cost, if Commercial property over $50,000. At cost, if residential property over $250,000
Transaction Fees: 50 free per month
Additional transactions: $0.40 each
Access: 24 hour telephone banking (Live or IVR), Cheque book, Business eftpos card with overseas access, *PC Deskbank software – $35 per month
Business card:Swept to overdraft account every 30 days. Provides up to 35 Interest Free Days. $35 annual fee, waived in year one.
PC Deskbank: Provides access, balance enquiry, funds transfer, 3rd party payments and payroll.