Tag: inflation

From soaring inflation to disinflation. Latest CPI relevance for interest rates

How Disinflation Affects Commercial Finance Interest Rates Business Finance Australia covers off on the latest inflation figures from the ABS and the relevance of disinflation on commercial finance interest rates. Disinflation is the term which Michelle Marquardt from the Australian Bureau of Statistics (ABS) used to describe the two consecutive monthly figures of a lower inflation rate annually. From the peak of 8.4% reached in December 2022 and following a year of soaring rates, the ABS has now reported two monthly CPI data series of lower rates. January’s rate was a significant fall to 7.4%. A smaller drop was expected by the markets for February, possibly to around 7.1%. But the figures were much better than expected with the annual inflation to February 2023 at 6.8%. The result is extremely significant for interest rates as it comes less than a week ahead of the crucial Reserve Bank (RBA) Board meeting to make the April cash rate decision. This meeting and... Read More Caret Right

Considering new commercial loans? Review latest inflation and economic figures for guidance

Reviewing inflation and economic activity data may provide guidance as to the potential business outlook to assist in making decisions on commercial loans. Deciding when is the best time to proceed with major acquisitions with finance – trucks, equipment, machinery, can be guided by an understanding of the outlook for the specific industry sector or the wider economy. What’s happening with inflation in the current economic climate is of particular significance. The RBA is continuing with raising the cash rate to bring inflation down to its target of 2-3%. Changes in inflation may provide indications of what the next RBA decision may be. The timing of securing commercial loans may mean the difference in a higher or lower interest rate. A difference which may be significant in the effect of cash flow over the term of the finance. While it may sound like quite an involved and complex process to study statistics on economic activity, it doesn’t have to be to... Read More Caret Right

February RBA Meeting Minutes reveal uncertainties re interest rates and inflation

The uncertainties discussed by the RBA Board at its February around interest rates and inflation may present reason to expedite new asset purchases with finance. These uncertainties were detailed in the Minutes of the 7 February meeting which were posted to the Reserve Bank website on 21 February. While most will obtain information on RBA decisions through media reports, it can often be worthwhile referring directly to the source documents to gain a better perspective and greater insights. Meeting minutes contain a lot more detail and cover a wider range of topics than are included in the statement issued by the Board to announce its monthly interest rates decisions. This additional information may be beneficial to business owners and operators in acquiring a more broad-based view of the outlook for their sector or the Australian economy in general. Most importantly, the minutes may offer a greater understanding of the RBA’s thinking and reasoning around interest rates. Rates are key to... Read More Caret Right

Prospects for interest rates with latest inflation increase

Prospects for more interest rates rises were possibly strengthened with the latest November CPI data from the ABS revealing continuing inflationary pressures. The CPI data for the year to November was published by the Australian Bureau of Statistics (ABS) last week and shows the October drop in inflation was short-lived. In November inflation rose again by 0.4% to bring the current rate back to the September figure of 7.3%. These newest figures are in line with the outlook from the Reserve Bank of Australia (RBA) for inflation to edge even higher. The Board’s outlook was upped from the previous 7.75% to a peak in 2022 of 8%. The newest data covers November so the December figures are awaited to see what the annual rate is and if it is a peak. The December Quarter CPI data along with the monthly figures for December are due to be published by the ABS on 25th January. The timing is proving a busy... Read More Caret Right

June Inflation Data Supports Further Interest Rates Rises

The June inflation data supports forecasts of further interest rates rises but cheaper rates can be achieved through specialist business finance lenders. The RBA noted in statements earlier in the year that the rate rises would take some time to have an effect on inflation. So the rise in the June quarter came as little surprise. But on the back of the significant fall in unemployment reported earlier in July, these latest figures will certainly support the RBA’s next rate rise decision. The sharp rise in inflation since late 2021 is the main purpose of the recent RBA rate hikes. Additional rises may give further reason to increase rates by more significant amounts and over more months. For businesses planning new asset acquisitions such as trucks, equipment and motor vehicle, being armed with the information around inflation and interest rates may assist in budgeting for such major purchases. Rises in the cash rate flow through the lending markets. Often we... Read More Caret Right

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FAQs
Business Finance FAQs

Yes, subject to the specific guidelines of individual brokers. Many brokers will offer services to all types and sizes of commercial set-ups while some may specialise in working for only some types of operations. Some brokers may also specialise in certain industry sectors or with specific financial products.

Commercial loans all offer tax deductible elements. These vary with the different products including Chattel Mortgage, Leasing, Rent to Own and Commercial Hire Purchase. Interest payments are all tax deductible. With Leasing and Rent to Own the repayments are tax deductible. With Chattel Mortgage a tax benefit is realised through depreciation.

The interest rates vary with the different funding products. Rates will change across the market with changes in the cash rate by the Reserve Bank. Rates will differ depending on the individual application and credit rating. Rates can vary for equipment in different industries. Credit providers will advertise their best rate for good credit rating applicants.

Yes. Having a current ABN is an essential requirement to be eligible for commercial funding products. Additional documentation on the financials of the operation and other details will be requested as part of the application process. If not all documents are available, ABN holders may seek No Doc or Low Doc options.

The same products apply across all industries and types of operations. But the funding offers can vary across different industry sectors for some credit products. This may occur with equipment and machinery in particular. Interest rates on equipment funding may be different from one industry to another. This may be due to risk assessment of the sector or the individual guidelines of a particular lender. Vehicle funding interest rates would be less subject to industry variations.

The type of credit product best suited to a commercial enterprise will depend on:- accounting method used; balance sheet approach; approach to tax; and financial objectives. The most popular options are Vehicle Leasing and Chattel Mortgage. Operators are advised to discuss choice of product for suitability with their accountant.

Cash flow support may be sought through an Overdraft Facility or a Secured or Unsecured Funding Option. All may be sought to support an operation with ongoing expenses to support cash flow.

New start-ups with an ABN are eligible to apply for all types of commercial loans. As most will not have all the documents for the application, they may seek No Doc and Low Doc options through specialist providers and brokers. Funding can be sought for vehicles, trucks, equipment and other purposes.

To be eligible for commercial loan, applicants must hold an ABN and identification are essential requirements. GST registration is not essential. A selection of documentation, docs, is requested. This may include tax returns, BAS returns, trading figures, bank statements, balance sheets and annual accounts.

Refinancing may be considered for many types of commercial funding arrangements. These may include asset acquisition funding, overdrafts as well as general secured and unsecured arrangements. Refinancing may be sought for a range of purposes including to achieve a lower interest rate, restructure repayment schedule or as part of a business-wide review of financials.

In general terms, any equipment which is for use in a commercial operation may be eligible for commercial funding. The ATO sets out eligibility for tax deductible asset acquisitions. The type of equipment will vary depending on the industry. It can include heavy machinery and equipment right through to general equipment such as computers, IT and photocopiers. Lenders may have their own guidelines as to what equipment they will fund.

Commercial financing is available through major and second tier banks and a wide range of non-bank lenders. Brokers offer services to assist operators to source funding to suit their requirements.

Rates are offered following an assessment of the application. The rate will be based on the credit rating of the applicant, the amount being applied for, aspects of the goods or purpose of the funding and other aspects. Rates offered vary across the lending market and are subject to the individual guidelines of the credit provider. Changes to monetary policy by the Reserve Bank can impact the interest rates market.

Features and structure of commercial loans should be assessed in relation to the accounting methods and objectives of the company. Consulting with an accountant can assist with this process. The best option is the one that suits the individual objectives and goals.

No. ABN holders and sole traders that are not incorporated are still eligible for commercial loans. Some lenders will have guidelines around application approvals. Small enterprises may seek a credit provider that accepts applications from their type of operation or seek assistance from a broker.