Is inflation heading in the wrong direction? 

Australia’s inflation rate has been a significant point of discussion, with the Reserve Bank of Australia (RBA) taking steps to try to curb it by raising interest rates.  

However, in the June 2024 quarter, annual inflation rose by 3.8%, up from March’s 3.6%, according to the Australian Bureau of Statistics. This uptick, following earlier rate hikes, suggests that inflation is proving more persistent than hoped. 

Impact of inflation on monetary policy 

The RBA is committed to returning the inflation rate to within its target range of 2-3%. The main tool in the central bank’s toolkit to do so is adjusting monetary policy. By increasing the official cash rate, the RBA aims to reduce consumer spending by making borrowing money more expensive. The goal is to slow down economic activity enough to prevent further inflationary pressures. 

This strategy initially appeared effective, with inflation dropping from its December 2022 peak of 7.8%. However, the recent increase indicates that inflationary pressures remain.  

If inflation does not ease, the RBA may have no choice but to increase rates again, despite the economic challenges this could pose for the country. 

The RBA has remained cautious, stating only that it “remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”  

Impact of inflation on business owners 

Over the two years that the RBA has been raising rates, business owners have been impacted. The increased cost of borrowing has made it significantly more challenging to secure loans. Whether you are looking to expand your business, acquire a new business or purchase new assets, higher interest rates have meant higher loan repayments. 

The increased financial burden can also impact a business’s cashflow, a critical factor used by lenders when assessing your creditworthiness. As businesses grapple with higher costs, their capacity to service debt reduces, potentially leading to stricter lending criteria from financial institutions. 

Impact of inflation on credit applications 

The current economic climate, marked by rising interest rates and higher inflation, has introduced uncertainty for businesses considering expansion. While these factors have influenced borrowing decisions, it’s important to note that opportunities still exist for well-prepared businesses. 

While data from Equifax indicates a slight decrease in business loan and asset finance applications between the June quarters of 2023 and 2024, this data doesn’t show a complete aversion to borrowing, as the decrease was only 0.2% year-on-year. 

It is more likely that businesses are evaluating their position and timing the application or finance very carefully, which can be a successful strategy to grow your business. The uncertainty surrounding inflation and interest rates complicates financial planning for business owners.  

How to expand your business in this interest rate environment 

Despite these challenges, there are still opportunities for business owners looking to expand. Here are some strategies for real estate agency owners looking to grow: 

• • Manage cashflow: Prioritise maintaining a strong cash flow. This may make your business more attractive to lenders and provide a buffer against economic downturns. 

• • Shop around: With the help of a broker, explore various lending options and negotiate for terms that suit your financial needs and long-term business goals. 

• • Focus on strategic acquisitions: While the overall cost of acquisition might be higher due to increased borrowing costs, focusing on smaller, more profitable agencies may still yield positive returns. Conduct thorough due diligence to identify undervalued businesses. 

Get help from a professional 

As agency owners, you know the value of a broker in the purchase of real estate. Likewise, finance brokers can offer you in-depth market knowledge and personalised guidance through the finance application process. A broker’s expertise can streamline the process, improve your chances of loan approval and save you time and money. 

Whether you’re looking to acquire another real estate business or want a health check on your existing debt, Finance Advisory Co can help. Contact us by filling in this online form, calling 0426 236 007 or emailing ben@finad.com.au  

Credit Representative 541104 is authorised under Australian Credit Licence 389328.  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.