The Rate Rise Has Happened - Now Work Out What It Actually Costs Your Business
Why the number that matters is not the cash rate headline, but the effect on your own debt, margins and decisions.
Written by: Melissa Cunliffe (CA)
The headline is 4.60%. Your number will be different.
On 29 September 2026, the Reserve Bank of Australia increased the cash rate target by 25 basis points to 4.60%. The Board said inflation remains too high, domestic capacity pressures are still present and global energy and technology-related costs are adding further pressure.
For a family business, however, the headline rate is only the starting point. Your actual exposure depends on how much debt you carry, whether it is fixed or variable, the lender margin above benchmark rates, the term of the facility, principal repayments and whether the bank reprices the facility by exactly the same amount as the RBA move.
That is why the useful question is not, “What did the RBA do?” It is, “What does this do to our cash flow?”
Start with a simple debt stress test
If a business has $2 million of variable-rate debt, an extra 0.25 percentage points is roughly $5,000 a year in additional interest. At $5 million, the same change is about $12,500 a year. The numbers become much larger when the business has several facilities, commercial property debt, equipment finance and working-capital lines.
But one 0.25% increase should never be the only scenario. A useful management forecast should show the current position and then test at least another +0.25% and +0.50%. For a highly geared business, a +1.00% scenario can also be worthwhile.
The goal is not to predict the RBA. It is to know how much room the business has if rates move against you.
The Cost of a Rate Rise on Your Business
Not all debt is equal. Debt used to buy an asset that increases productive capacity, reduces labour, supports a profitable new location or acquires a business with sustainable cash flow can create a return. Debt that repeatedly funds old tax liabilities, overdue suppliers, drawings or operating losses tells a very different story.
A rate rise makes that distinction sharper. When finance is cheap, poor-quality debt can hide for longer. When finance becomes expensive, every dollar of debt has to work harder.
Owners should ask: What did this debt buy us? What cash flow does that asset or investment generate? And does the return still exceed the cost and risk of the finance?
What about government spending and inflation?
This is where the discussion becomes political very quickly, so it helps to separate the economic mechanics from the political argument.
The RBA has repeatedly explained that inflation depends on total demand relative to the economy’s capacity to supply goods and services. Government spending is one component of that total demand, alongside household spending, business investment and overseas demand. In September, RBA Assistant Governor Sarah Hunter said public demand and government spending form part of the aggregate-demand picture the Bank considers when assessing inflation pressure.
That does not mean every dollar of government spending automatically causes inflation, nor does it mean the September rate rise can be attributed to one level of government or one budget decision. In its August Statement on Monetary Policy, the RBA said recent federal and state budgets had not materially changed its view of public demand or the fiscal stance. The 2026-27 Federal Budget, for its part, argues that its net decisions and improved fiscal position take pressure off inflation.
The fair conclusion for business owners is simpler: government fiscal policy can add to or subtract from demand, but the RBA is looking at the whole economy. Current inflation pressure is also being influenced by energy costs, domestic capacity constraints, investment, labour-market conditions and global factors.
Why a strong economy can still feel hard inside a small business
One of the confusing features of a high-rate environment is that the economy can still show strong investment or spending while individual businesses feel squeezed. The RBA itself noted that domestic spending and investment had been stronger than expected even as sentiment and housing conditions softened.
A family business can therefore face higher interest, wages, freight, insurance and supplier costs at the same time that customers become more price-sensitive. That combination compresses margins from both directions.
The answer is not simply to “sell more”. If additional sales are low margin or require more stock, more debtors and more labour before the customer pays, growth can intensify the cash squeeze.
Five numbers to put on the table this week
For each major finance facility, calculate the outstanding balance, current interest rate, annual interest cost, next review or expiry date and what the annual interest cost becomes at +0.25%, +0.50% and +1.00%.
Then connect those numbers to the operating business. How much additional gross profit is required to cover the extra interest? Does the business have the pricing power to recover it? What happens if customer demand also softens? Are there facilities that can be reduced from surplus cash or asset sales? Can debt be restructured without introducing unacceptable fees, security or refinancing risk?
These are management questions, not merely finance questions.
Where the 4P’s Future Prosperity Framework fits
People: understand what higher repayments mean for the owners, family income, stress and personal goals - not just the company P&L.
Preserve: protect cash flow by understanding debt costs, margins, pricing and working capital before pressure becomes a crisis.
Protect: stress-test facilities, refinancing dates, guarantees and security so there is a plan if rates stay higher for longer.
Prosper: make sure new debt supports investments that genuinely strengthen earnings, productivity or long-term business value.
The aim is not to guess the next RBA decision. It is to build a business that already knows what it will do if the next decision goes either way.
Where the 4P’s Future Prosperity Framework fits
People: understand what higher repayments mean for the owners, family income, stress and personal goals - not just the company P&L.
Preserve: protect cash flow by understanding debt costs, margins, pricing and working capital before pressure becomes a crisis.
Protect: stress-test facilities, refinancing dates, guarantees and security so there is a plan if rates stay higher for longer.
Prosper: make sure new debt supports investments that genuinely strengthen earnings, productivity or long-term business value.
The aim is not to guess the next RBA decision. It is to build a business that already knows what it will do if the next decision goes either way.
Frequently Asked Questions
Did the RBA raise rates because of government spending?
The RBA did not attribute the September decision to government spending alone. It said inflation remained too high and referred to domestic capacity pressures, stronger-than-expected spending and investment, global energy prices and technology-related costs. Government spending forms part of aggregate demand, but it is one component of a much broader inflation picture.
Does a 0.25% cash rate rise mean my business loan rises exactly 0.25%?
Not necessarily. Lenders price business loans using their own funding costs, margins, security, borrower risk and facility terms. Some variable loans may move broadly with the cash rate, but the actual change can differ.
Should a business fix its interest rate now?
That depends on the facility, pricing, break costs, expected cash flow and the value the business places on certainty. It is a financing decision that should be modelled rather than made solely on a rate forecast.
What is the best way to prepare for further rate rises?
Know the dollar impact before it happens. Stress-test debt at several rates, review refinancing dates, protect working capital and make sure new borrowing is tied to an investment with a clear commercial return.
Could your business absorb another interest rate increase?
Understanding your debt exposure and testing different rate scenarios can help you prepare for higher repayments before they put pressure on cash flow.
Talk to Future Accounting about building a financial plan that supports more confident business decisions.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
