The Reserve Bank has called for greater transparency in business lending after new data showed small business borrowers in New Zealand face markedly higher loan costs than equivalent firms across the Tasman.
A deep dive in RBNZ’s Financial Stability Report reveals New Zealand’s smallest firms pay an average lending spread of 390 basis points above the 90-day bank bill rate, compared with 280 basis points for medium-sized firms. Both figures sit well above Australian benchmarks, where small businesses pay roughly 294 basis points and medium-sized companies 192 basis points.
Unlike the residential mortgage market, where homebuyers can use comparison tools and public rate tables, business owners have almost no visibility on whether the rate they are paying is competitive. “What we’ve tried to do is highlight that those discrepancies exist and hopefully push towards getting greater transparency in the sector,” says Chris McDonald, the RBNZ’s Manager of Systems Monitoring and Analysis.
For the 99.7 per cent of New Zealand firms classified as SMEs, collectively responsible for 64 per cent of all wages paid, that information gap carries real consequences.
New Zealand Sits Well Above Australia For Lending Spread
The RBNZ’s analysis provides some of the most detailed publicly available data on what New Zealand businesses actually pay to borrow. The Bank examined lending spreads across firm sizes and loan types, drawing on both bank-reported data and its own credit conditions survey. It notes banks have loaned $138 billion to Kiwi SME, making up around 23 per cent of their total loan portfolio.
The gap between New Zealand and Australia is striking. New Zealand small firms pay an average spread nearly 100 basis points higher than their Australian equivalents. For medium-sized firms, the gap is approximately 88 basis points.
Loan type is a factor. Commercial property lending attracts the lowest spreads, reflecting the strong collateral underpinning those loans. At the other end, lending designated as for “other business” purposes carries the highest costs, reflecting differences in collateral quality and risk.
The data also confirms there’s a penalty according to the size of the business. Across virtually every lending category, smaller firms pay more than larger ones for equivalent credit. The RBNZ says this is partly a reflection of reduced competition for smaller loan books. “Banks face higher per-unit costs in lending to smaller firms, and the competitive dynamics differ from those in the mortgage market,” the report states.
Why Banks Charge Smaller Firms More
The report suggests several factors drive the pricing gap. Banks assess SME loan applications based on collateral type, sector risk, the borrower’s financial track record and the size of the business. Smaller businesses typically present higher perceived risk across most of these dimensions, and have limited leverage at the negotiating table.
Collateral plays a particularly important role. Many small business owners borrow against their personal home rather than dedicated commercial assets, meaning that housing market conditions can directly affect the terms and availability of business finance. When residential property values soften, business borrowing capacity can tighten even if the business itself is performing well.
The RBNZ also flags structural barriers affecting certain groups of business owners. Māori businesses, for example, may face additional challenges accessing finance due to the nature of collectively held land and assets. The report acknowledges there is not enough data to confirm whether specific groups, such as Māori-owned or women-owned businesses, face systematically different lending outcomes, but says this area warrants further investigation.
Rejection Rates Stay Low but Loan Terms Push Businesses Away
One of the more nuanced findings in the report is that outright loan rejections are not the primary barrier for most SMEs. Rejection rates average below 5 per cent, suggesting that the vast majority of businesses seeking credit do receive an offer.
The real problem for SMEs lies in the terms attached. A meaningful share of small businesses report being offered finance on conditions they find unacceptable, whether that means higher interest rates, larger collateral requirements or restrictive covenants. The RBNZ notes that “smaller firms are more likely than larger firms to report being offered credit on terms that do not meet their needs.”
For SME owners already navigating persistent cost pressures, unfavourable lending terms can further stretch budgets or, if they choose to walk away from the offer, result in foregone investment, delayed hiring or shelved expansion plans.
Lending Demand Picks Up as the RBNZ Pushes for Change
The report finds some positive signals. A credit conditions survey shows that lending demand has been recovering since mid-2024, with banks reporting increased applications for acquisitions, asset purchases and working capital.
However, the Bank cautions that the economic backdrop remains uncertain. “While demand for business credit has picked up, the outlook for SME lending will depend on broader economic conditions and the willingness of banks to compete for this segment,” the report states.
In calling for improved transparency, the RBNZ argues that better public information on lending rates and terms would give business owners the benchmarks they need to assess whether they are getting a fair deal. “We are looking to get more data and we do believe that enhanced transparency will help in this regard because it will also make it easier for small and medium-sized businesses to compare against different banks,” says Governor Anna Breman.
In the meantime, SME owners can always ask their bank how a quoted rate compares to market benchmarks, request quotes from multiple lenders and seek better terms. Reducing operational costs wherever possible, whether through smarter systems, streamlined payroll or tighter admin processes, also strengthens cash flow and borrowing capacity, giving owners a stronger position when they sit down with their lender.
