A lot of people get business finance, but not so many review their finances and their needs regularly. So when rates go up, they’re caught by surprise – and end up with “mortgage stress” of the business kind.
Reviewing your finances is particularly important in May 2022 for three good reasons:
- Interest rates ARE going up – and not just for housing loans. Interest rates for all forms of finance are expected to continue upwards for some time. So whether you have finance OR you’ve been thinking about finance – now is the time to act.
- More businesses are going to need more flexibility than ever before as the impacts of COVID and extreme climate events disrupt local and global supply chains. And the key to that flexibility is the right finance
- The low, fixed-interest, government guaranteed finance from SME Recovery Loan Scheme finishes on 30 June 2022.
The days of cheap money are numbered
The past 14 years of super-low interest rates have been exceptional – exceptional in the same way that interest rates of 16% and more were exceptional back in the 1980s.
The first step in increased rates has happened in Australia – when the Reserve Bank lifted rates by 25 basis points on Tuesday 3rd May, responding to a 5.1% increase in the cost of living in Australia – the biggest annual inflation rate for two decades.
Inflationary pressures contributing to the rise in the cost of living so far include:
- Oil prices have spiked – and are expected to stay high in response to the Russian invasion of Ukraine.
- Housing prices have soared in recent years – savagely increasing what both buyers and renters have to pay to put a roof over their head.
- Food prices are up – pushed first by drought and fire, then by massive flooding.
Commentators expect that this is the first of a number of rises, and that over coming years we can expect further increases – perhaps up to 2.5-3.5%.
So while the May 3rd interest rate rise of 0.25% only ups monthly repayments on a home mortgage of $500,000 by $65, if increases continue as expected over the next two years, the total impact will be $600+ per month. It won’t just be housing loans that cop interest rate increases.
All sorts of loans can be expected to carry increased interest rates over time – including common business finance options such as:
- Trade Finance
- Asset Finance
- Cashflow Finance
- Working Capital Finance
So if you haven’t reviewed your business loans and finance strategy recently, you could be in for a shock.
And if your loan repayments are higher, it’s going to be harder to be ride the waves of disruption.
Flexibility is required to surf ongoing market disruptions
There are already substantial supply chain disruptions caused by COVID. Plus additional disruptions from other sources – from local floods to international conflicts.
We’re by no means over COVID – more variants are evolving – more infectious if less deadly. Add this to ongoing supply chain disruptions, and the sad likelihood is that many small businesses that have hung on in hopes of “things getting back to how they were” are likely to give up the struggle and close down.
Riding these waves of disruption and prospering will require increased flexibility – especially in the area of finance.
Strategic, effective finance enables flexibility:
- Trade finance can free up cash from your supplier invoice payments to buy buffer stock or win early payment discounts.
- Debtor/invoice finance means you don’t have to wait until major customers pay you to access that cash to grow your business – so you can act on new opportunities.
- Asset finance can give you flexibility and scalability in plant, equipment and fitouts.
- Working capital finance gives you extra flexibility to invest in new opportunities.
Finance creates flexibility – but the cost of finance IS going to increase over the foreseeable future. So now is the time to take action to secure extra finance and control the cost of that finance.
Federal COVID Recovery funding finishes on June 30
Applications for the Australian government’s SME Business Recovery Loan Scheme close on 30th June 2022.
The SME Business Recovery Loan Scheme offers low interest loans capped at 7.5% to SME businesses with a turnover of $750,000 or more AND it’s government guaranteed, so it doesn’t require your real estate as security.
If you qualify, that means you have access to 5-year fixed-rate, government-secured finance. That’s a very good offer as interest rates are starting to move up instead of down.
If you have a turnover of over $750,000 and a clean credit history then you could qualify for extra assistance – and the application process is as simple as getting a credit card application.
Get strategic about your finances – quickly
Don’t wait until increasing interest rates push you to the wall. Get advice now, so you can fix your interest rates and protect your cash flow.
As I’ve written previously, money is a commodity, not scarce and finite a treasure. https://finforbiz.com.au/whats-the-emyth-got-to-do-with-the-cash-trap/
Treating money strategically – thinking like a CFO rather than a bookkeeper – can make the right finance a good investment with significant returns in flexibility and productivity.
So now is a very good time to take a strategic look at your finances and your business objectives for the next 2-5 years and ask yourself:
- Do we have existing forms of finance that we should fix interest rates on?
- Do we need strategic finance to increase our flexibility and grow our business?
- Do we need to get smart finance options that free up our operating capital?
- Are we eligible for the SME Recovery Loan Scheme?
If you have a turnover of over $750,000 and a clean credit history then you could qualify for extra assistance.
Even if you don’t – getting advice BEFORE interest rates rise further will save you money – and enable your business to surf ongoing disruption.
Get advice today
Just because the banks say “no” it doesn’t mean you’re stuck with the business you can “afford” – and exposed to ongoing disruption.
Your finance needs are as complex and unique as your fingerprint. So you need expert advice that fits your situation.
If you’re facing the post-COVID cash gap with a good business but limited resources, talk to me about your goals and your needs.
Martin Cattach
+61 407 477 555
Discussion on working capital and funding options:
https://calendly.com/martincattach/confidential-discussion-on-working-capital-requirements
