After an extended period of record low interest rates through 2020 and 2021, the Australian economy is now experiencing the first rate rises in around 12 years. A scenario which will be something very new to tackle for many businesses seeking financing. As the RBA undertakes a process of normalising monetary policy and raising the cash rate businesses need to prioritise seeking the cheapest financing rates to ensure cost-effective and workable business finance is achieved. To achieve this objective, business operators can address the key factors which contribute to being offered the best interest rates. In addition, a range of options in regard to lender, finance product and finance structure can be considered to ensure the overall financing is as affordable as possible. RBA Scenario The RBA  held the cash rate at the historic 0.1% since November 2020 and consistently repeated its position as remaining patient and waiting for inflation and unemployment to be in target range to trigger a rise. With inflation surging, the first rise in May 2022 and was followed with a second in June 2022. The RBA Governor has indicated that further rises will be required in the coming months. The RBA Board meets monthly with all eyes on 5 July and 2 August for the Board’s decisions. Rises in the cash rate by the RBA are followed with increases in lending rates. Sourcing Cheaper Financing Rates In the search for the cheapest interest rates on financing, businesses can first look to their choice of which bank or non-bank lender to approach. Lenders price their loans differently and in accordance with their costs and guidelines. While the rates on many loans may be in a similar range, there are variations and those variations can add up. To emphasise the point, use our financing calculators and alter the rate slightly. Note the difference in the monthly repayment estimate. That could be the extra a business is paying every month over the full up to 7 years of a finance term. That adds up to a significant amount. Surveying the full lending market when sourcing finance can be the goal but in practical terms, unrealistic. Very few business owners will have the time to conduct such in-depth research and some specialist lenders are not readily identified or available direct to business. To save the time and the hassle associated with the process, businesses can engage the services of broker-style operations such as ours. Our consultants provide a comprehensive service in sourcing the cheapest interest rate financing from across a vast selection of banks, finance companies and specialist non-bank business lenders. What business owners can address is there credit rating. The lowest rates advertised for business financing typically apply for good credit rated applicants. The credit rating is a measure of creditworthiness and to lenders the risk factor. Improving a credit score and profile where possible can increase the prospects of being offered a cheaper rate. Sole traders and micro-businesses may also have their personal credit rating assessed as part of the application approval process. There are ways that individuals can improve their credit score which are detailed at Moneysmart. Increasing Financing Affordability While the interest rate is critical to the total finance cost and the repayments, the type of finance product and how the financing is structured can also impact affordability and profitability. This is particularly relevant in regard to the purchase of assets – motor vehicles, equipment, trucks and machinery. These fall under the category of asset acquisitions and can be financed with:-

• Asset Leasing
• Rent-to-Own
• Commercial Hire Purchase
• Chattel Mortgage

Ensuring the loan type selected will work to support the business is essential. This relates back to the specific features of the different loan types and primarily to accounting issues. Referring to an accountant that has in-depth knowledge of the business can greatly assist in the decision-making process. Considerations will be around the suitability to the method of accounting used by the business, the balance sheet strategy and other matters. While Chattel Mortgage and Commercial Hire Purchase typically feature lower interest rates than Leasing and Rent-to-Own, the features of the latter may be more workable for an individual business. For example, not having the asset on the business balance sheet with Leasing compared with occurs with Chattel Mortgage, may be more desirable in achieving the long term objectives of the business. Structuring the finance can be critical to cash flow and profitability. Not being in a position to achieve the preferred loan term and hence repayment level can place undue pressure on cash flow and eat into profits month after month. Clearly an unworkable situation. Using our services may be pivotal in achieving the preferred financing structure as our consultants are skilled in negotiating with lenders to achieve the customer’s preference in this regard. Factoring in Tax Benefits When aiming for the cheapest financing, available tax benefits can also be taken into account. Currently, temporary full expensing is available to eligible businesses and can represent significant deductions which can contribute to profitability. To utilise this accelerated asset depreciation measure, Chattel Mortgage is considered the most appropriate asset financing product. As interest rates continue to edge up with each RBA rate hike, business owners can still achieve cheaper interest rate financing which is cost-effective and workable by taking a more diligent approach and engaging the services of a highly experienced broker to assist. Contact Business Finance on 1300 000 033 to discuss achieving cheaper business financing solutions DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.