Rates are rising – what does this mean for business owners?
The cash rate is up, borrowing is more expensive and savings are looking rosier. We look at what that change and possible future increases could mean for business owners.
Putting the changes in context
After a 25 point rise earlier in the year, the Reserve Bank has increased the RBA cash rate again, this time by a hefty 50 basis points. The cash rate target now stands at 0.85%.
The RBA made the change in response to high inflation that has seen prices for everyday goods and services quickly increasing. Changing the cash rate makes borrowing more expensive, which should dampen demand in the housing market and rein in inflation over time.
Following the first rate rise, major Australian banks including Westpac, Commonwealth Bank, and ANZ announced changes to their variable mortgage rates, passing all of the increase on to customers.
It’s not just about property prices
The media tend to focus on how the cash rate affects house prices – but the impact of a significant change to lending rates goes beyond homeowners. In a general sense, the lending rate drives up the cost of borrowing, so a rise makes all borrowing less appealing. On the positive side, the benefits of saving also increase as interest rates for savings accounts generally rise in response.
The result is that many people will be less keen to invest in property, and will start looking at other options instead – like savings accounts, term deposits and the stock market. Businesses relying on short or long-term borrowing will be similarly affected.
What does it all mean for your business?
Rising interest rates are likely to affect credit card rates, making them an even more unsustainable source of short-term funding. Cheap loans from your bank or other lenders will be less accessible. As a result, you won’t be able to rely on them for short-term cash fixes.
Despite the change, inflation is predicted to continue. Rising prices and increasing overheads can make it challenging to keep cash flowing into your business. It’s worth taking a hard look at your approach to finance before things get difficult.
Cash in your invoices with factoring
One funding option worth reviewing is invoice financing. It lets you access the cash in your customer invoices before they’re paid, providing cashflow when you need it.
The funder pays you upfront minus a small fee, and in turn gets paid at term by the end debtor (your customer). It’s a smart way to keep cash flowing in your business during lean times, or when debtor payment cycles are getting longer. It’s also a great way to harness the momentum of a growing business by feeding early income back into the business straight away. Because the provider works with the client, the admin side of things is easier on you as well – you’re not faced with repayment letters or compounding late fees.
Butn X is our invoice financing service. As with all our services, it’s super-simple and accessible for all business owners. Whether you’re a start-up, a fast growing business, or an established company, get instant advances at the click of a Butn.