South Australian businesses are taking advantage of the current fixed interest rate environment and three to five year terms at all time lows, according to National Australia Bank.

NAB State General Manager nabbusiness, Joanna White says interest rates on fixed terms of three to five years have touched all time lows, below where they were at the height of the global financial crisis.

She says businesses with fixed income streams, such as commercial property investment, can benefit the most, because increased yields from commercial investment property coupled with historically low fixed interest rates are creating positive gearing opportunities.

“With fixed lending rates over a three and five-year investment period having reduced substantially in recent weeks, and commercial property investment yields increasing from GFC levels, there is potential for strong positive gearing in the current market,” Joanna says.

“This compares favourably with the situation that existed until recently, when yields were similar to or lower than borrowing costs and investments were leveraged or negatively geared.

“This shift has created opportunities for commercial property investors to lock in low cost funds and maximise yields.

“While investors must do their due diligence, commercial properties with strong lease profiles can have the potential to generate solid returns.”

Joanna says South Australian businesses were responding to the current fixed interest rate environment.

“Multiple cuts have already been priced into fixed rate terms so more South Australian businesses are fixing the interest on their loans in order to take advantage of lower borrowing costs,” she says.

“With fixed rates providing businesses with greater security in their longer term arrangements, many of these businesses are seeking long-term certainty around their borrowing costs.

“We are seeing this particularly in industries with relatively fixed income streams such as property, agribusiness and hospitality.”

She says businesses should look at their individual circumstances when deciding whether or not to fix and consider:

• Do you plan to retain the asset for the duration of the loan term? Locking into a five-year loan term for an asset you plan to sell in 12 months’ time might end up costing you more in the long run.
• Can you service the level of debt for the duration of the loan term?
• While fixed rates are currently lower than variable rates, this could change.
• Is it right for your business?
 

Updated 17 July 2012