Business finance rates on variable rate loans and new loans with fixed rates are likely to increase after the RBA rate increase, subject to lender decisions, a scenario which may have business owners considering putting plans for new vehicles, equipment, and working capital on hold. But workable financing at affordable rates may be secured through the right lenders.
Variations in rates for asset financing and commercial loans can be found across the market. The commercial credit market is highly competitive, and lenders determine their rates for their credit facilities based on a range of factors. These factors include the forecasts for the economy and the rate market provided by their own analysts, which may be based on their interpretation of economic indicators. In response to a media question on market expectations, Reserve Bank (RBA) Governor Michele Bullock said what the market expects is how they interpret the data. Interpretations which may vary from those of the central bank which determines the cash rate movements.
If planning to take on finance, where can businesses secure affordable rates now? What should operators be looking at as indications of where rates are heading? We cover off on the latest RBA decision, what commercial loans are affected, what could be ahead and how we assist businesses to secure their best rates for workable financing.
RBA Interest Rate Increase Decision
The Reserve Bank Monetary Policy Board lifted the official cash rate by 25 basis points to 4.6% at its September meeting. The decision was unanimous with Board members discussing a hold and a 0.25% increase.
In announcing the decision, Governor Michele Bullock said that inflation was still too high and that risks that the Board had identified at its August meeting had started to materialise. Specifically, that the Middle East conflict, which is impacting fuel prices globally, has gone on longer than expected. The boom in AI was also noted as contributing to inflation, with increases in software prices and the impact of rising data centre construction projects on the construction sector.
Ms Bullock said that changes to interest rates were the only tool that was available to the RBA to address inflation. While most people do not see the mechanisms, this has been proven to work to drive down high rates of inflation.
For those looking to what may be ahead, Ms Bullock did not rule out further rate rises if the situation required it. The focus of the Board is to ensure high inflation does not become embedded and that it falls to the Bank’s target of 2-3%. The day after the RBA meeting, the Australian Bureau of Statistics (ABS) revealed that inflation was still rising with the August figure showing a rise from 3.5% to 4%. The next monthly inflation data set is due on 28 October and the next RBA interest rate decision on 3 November.
Effect on Business Finance Products
The commercial credit facilities which may be directly impacted by RBA rate decisions are loans with a variable interest rate. Existing loans with a fixed rate – Chattel Mortgage, Lease, Commercial Hire Purchase and Rent-to-Own are not affected. The current rate and repayments remain the same. Lenders may decide to lift their rates on these asset acquisition credit facilities for new loan applications in response to the RBA decision.
Working capital and cash flow loans – Overdrafts and Unsecured Business Loans, which many businesses rely on to operate, typically have a variable interest rate. To counter the latest rate rise, operators may consider refinancing these loans with a Secured Business Loan using unencumbered assets as collateral. This may mean a lower rate allowing the amount required for a 1 to 7 year period to be budgeted for. When rates do start coming down, there is always the option to refinance. Speak with one of our brokers to discuss if this is a possibility for your business.
New loans are likely to see rate rises, depending on the lenders. To account for the higher repayments, operators may consider purchasing a make or model at a lower price to reduce the loan required. If the monthly loan payment is key to the viability of an acquisition, requesting a larger balloon or longer term may reduce repayments to a workable level. Use our Finance Calculator to see how the term and balloon affect the monthly payment.
Assistance to Secure Affordable Business Finance Rates
Given the competitive nature of the commercial lending sector, connecting with the right lenders is integral to securing the most affordable rates. Changes to rates on commercial credit following the RBA September decision will vary across the market.
As specialists in commercial financing, we have accreditation with a very large lender selection and can provide the connections to those best market rates. We assist operators in securing their best rates by providing the market access and the expertise to negotiate on their behalf directly with our lender contacts.
We may have access to a non-bank lender that specialises in finance for your specific industry. These lenders can be more competitive than more general commercial lenders. But many non-bank lenders of this type are not available directly to businesses. They operate only through brokers.
To further assist operators, we may have credit solutions to directly address pain points in specific areas of the business. To discuss your business finance requirements, have a no-obligation discussion with one of our brokers.
For your most affordable business finance after the latest RBA interest rate increase, connect with Business.Finance brokers 1300 000 033.
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
