The recent decision by the Reserve Bank of Australia to hold one of its key interest rates steady (against the expectations of leading analysts) saw the Aussie dollar soaring to new heights against other international currencies. This has continued to hurt the ability of many Australian based businesses, especially in the retail sector that are trying to stay competitive overseas.

But it gets worse – all four of the major banks have decided to raise their interest rates despite national rates holding steady, citing higher costs of funding and sluggish demand. Analysts are now predicting that the age when the banks moved their rates with the RBA’s decisions (that used to be at the crux of economic monetary policy) could be a thing of the past.

This means a double blow for small businesses that must now pay higher interest rates for business loans. Add to this that it’s much harder for businesses to switch to other finance providers than it usually is for households – now that’s a triple whammy for small business owners.

Adding to economic uncertainty

Despite the strong demand in raw materials and natural resources that keeps the Australian economy strong against its international counterparts, its backbone is still predominately comprised of small business operations.

Peter Strong, executive director of the Council of Small Business of Australia (COSBOA), says the rate rises from ANZ and Westpac will dint confidence among small business owners, because they will feel that they can't predict the direction of rates. This means that many will face uncertainty about the direction to take their businesses in as they can’t reasonably forecast long term growth and results.

What you can do

As Australian households are turning to other finance providers for their mortgage and finance needs including member run credit unions, small businesses are also looking at other finance providers.

Equipment leasing is one option for businesses looking to gain new equipment for their operations. Debtor financing is available to businesses that want to tap into their accounts receivables to boost their immediate cash flow. And funding is available to new businesses via government grants, venture capitalists and strategic investors or through selling of shares and ownership in the business. Meanwhile, businesses may look into smaller lending institutions outside of the traditional Big Four including mutual banks that are owned by members and not shareholders.

The most important consideration for any small business operator is to do research and to understand all of their options in the current economy and financial situation.

Are small business owners bearing the brunt of the bank’s interest rate hikes? What options have you considered?

Robbo
robbo@flexigroup.com.au