Banks still dominating business loans

New research reveals credit unions have the best personal loan product offerings, but analysts say the banks are still competing with non-bank lenders for businesses loans.


According to the latest Personal Loans Star Ratings report, released by financial services research group Canstar Cannex, credit unions lead the way in personal loan products, outshining the banks.


In order to calculate the ratings, Canstar Cannex analysed 341 personal and car loans from 77 financial institutions in Australia. More than 100 parts of every product were analysed, including product parameters, flexibility and operating terms and conditions.


Of the 43 products awarded five stars, 40 belong to credit unions and two to building societies, while the remaining one belongs to a financial service company.


Canstar Cannex financial analyst Joshua Zenas says for the first time in years, there’s “not a bank in sight” among the five-star products.


“You could be throwing good money away if you don’t consider a credit union for your next personal loan,” Zenas says.


The personal loan is a staple product for non-bank lenders who hold it in high regard as a gateway to larger loans such as mortgages.


Canstar Cannex financial analyst Peter Arnold says while credit unions and building societies are very popular for personal loans, the major banks are still “very dominant” in small business lending.


“A lot of the major banks aren’t competing all that strongly for personal loans. They prefer to compete for mortgages and business lending,” Arnold says.


“While the major banks are very dominant in small business lending, it’s important for businesses to consider their options when going for a loan and try not to rule out [other lenders such as] credit unions.”


Arnold says this is particularly important for small businesses – even more so if they are located in regional areas – as the local branches of non-bank lenders are more inclined to be familiar with the area and the business itself.


“They might see potential in that business that a major bank might overlook. [Non-bank lenders] are a vital part of competition for the small business market and small businesses should keep that in mind,” he says.


Arnold says in addition to finding the best rate, small businesses need to choose a lender who will offer them a sufficient level of support.


“Having a lender with a dedicated team of small business bankers is important because they can offer you some really good insights while letting you concentrate on running the business,” he says.


“[A lender’s offering] needs to go beyond giving you money and providing payment systems; they should provide insight into the local economy and your particular market.”


Meanwhile, the latest ANZ Australian Economic Update reveals business credit continues to fall, with aggregate business credit down 2.3% over the year to December.


The report states: “With the economic impact of the recent floods to restrain household spending, impacting retail and wholesale business investment decisions, the outlook for business credit growth into early 2011 remains weak.”


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