What is the Impact of Cash Rate Increase on Small Businesses?

Saroj Shah
November 22, 2022

The recent jump in the cash rate has got all the small business owners scratching their heads about how it impacts their cash flow and prospects of getting a loan and running the business. People are confused as they compare business loan rates to what they were before. We have received an unprecedented number of inquiries, which led us to write this blog about the RBA’s announcement of the cash rate hike and how it affects present and future business strategizing.

 

RBA Increases the Cash Rate

Things have not been the same since 2021. The world was already grappling with the aftermath of the pandemic, rebuilding businesses and infrastructure to make it future ready. If that was not enough, earlier this year the Russia-Ukraine war initiated a chain reaction in the global trade arena, shooting up the inflation rates all over including Australia.

As a way to cope with the scenario, the Reserve Bank of Australia increased the cash rate by 2.75 basis points with another consecutive hike on November 2, 2022 which brings the current cash rate to 2.85%.

 

Cash Rate’s Impact on Interest Rates

For those that are not aware, the cash rate is the interest rate levied on the loan amount approved by financial institutions and lenders. The cash rate has a target point that is set by the RBA, monthly. When a hike comes into effect financial institutions will adjust the fluctuations by making changes in the existing interest rates.

The variable interest rate might vary as the cash rate changes the fixed rate usually remains static. So, if you have a fixed rate on your loan, the changes in the cash rate will not impact you.

You might want to discuss it with your finance broker or lender. If you need any help understanding, Broc Finance will be happy to help.

 

Tips to Make Past the Cash Rate Hike Situation

There are a few ways that you can survive and thrive past the cash rate situation. Let’s look at the best strategies that will serve you right.

  • It is essential to make a complete cash flow forecast, which allows you to peek at the financial future of your business and tweak it wherever necessary. Make it a habit to run the forecast with a provision for impact of further interest rate hike, so you are always on track with the financial state.
  • Often the forecast might predict a cash flow gap. That’s your sign to figure out ways to boost your cash flow to mitigate the situation. Ask Broc Finance experts for a business loan solution; they can help you.
  • If your business runs on inventory, monitor the stock and pricing to avert any adversity lurking behind.  

 

Conclusion

In the present time, as a small business owner, it’s normal to have concerns about the present and the future. However, there is always a way out if you seek expert counsel. A financial/loan advisor can guide you in the right direction; offering you relief and helping you understand and compare business loans. Connect with the experts at Broc Finance and let them look at your loan situation and numbers. Let us help you get past this trying phase. Reach out to us today!

Saroj Shah

Saroj is the Head of Lending at Broc Finance. He comes with 13+ years of experience in small business lending and has a knack of structuring complex deals and get the best outcome for his customers.