After two back-to-back interest rate cuts, Australian businesses could be forgiven for thinking that there has never been a better time to borrow money. However, Reserve Bank governor Philip Lowe has made clear these historically low interest rates come as a response to rising unemployment and a slowing economy.
So what do the latest low interest rates mean for the average small- or medium-sized businesses in Australia? Is it a good time to raise funds or not?
Low Interest Rates Mean All Business Funding Gets Cheaper
Lower interest rates make it cheaper to borrow money. This will give many SMBs the confidence to increase investment and plan for growth.
However, ambitious businesses would be well advised to shop around for their funding. Some banks have already faced criticism for not passing on the full extent of the RBA’s rate cuts to customers. This means absorbing the benefits from cheaper business loans could take longer than expected.
Alternatively, cuts to the base rate should make all forms of business funding more affordable. You should consider alternative ways to borrow money, such as invoice finance and supply chain funding.
Low Interest Rates Mean Markets Are Uncertain
Despite cheaper funding, markets remain uncertain. The USA-China trade war has posed a significant risk to global growth. Increased uncertainty tends to hurt business confidence and investment. Before you start making plans to invest ‘cheap’ money into ambitious growth plans, you might want to take a closer at your potential customer base.
Whilst growth in the wider economy has slowed, increased government spending on infrastructure will provide a positive offset. This is expected to benefit the resources sector whilst the technology sector remains steady.
Low Interest Rates Mean Flexibility Is Valuable
With opportunities tempered by uncertainty on the horizon, flexibility in funding is more valuable than ever. Whereas the RBA’s warnings might make a firm think twice about committing to two years of interest and variable repayments rates, there is funding available that can adapt rapidly to the individual circumstances of a business.
Cash flow finance is an ideal way for your business to fund your growth in uncertain times. This finance option can be arranged quickly whilst consistently reflecting the current state of your order book or accounts receivable.
Invoice finance, for example, is paid off directly as your customers settle their bills — at which point you can raise larger or smaller amounts depending on whether you are growing or scaling back.
You can find out more about the ways cash flow finance can be used to enable business growth — and the many kinds of innovative business finance available — on the TIM Finance website.