As you’re no doubt aware, the Big 4 banks look like they’re about to pass around the interest rate hat again.
ANZ kicked off proceedings on Friday by pushing through a six basis point increase on variable rate mortgages and small business loans. Fielding inquiries by national papers this week, none of the other big lenders have ruled out following suit.
There may be some relief on the horizon with yesterday’s RBA board minutes hinting at a reduction in the cash rate next month. However in all likelihood this will be a 0.25% movement, of which the banks will again take the slice they feel entitled to.
And while home loan rates are widely publicised and scrutinised in the media, banks often use the less public avenues such as business loans to stealthily keep their rates at a level where they can still have the dollars coming in.
For small business owners without the debt raising capacity of their big listed brothers, it’s a particularly hard slog. Rising loan rates present a double-edged sword for Joe Bloggs at Small Business Ltd.
On one hand there’s the increased interest burden to service borrowings, reducing cash available for spending and cutting into the company’s profitability.
On the other hand customers and clients are squeezed by the mortgage rate hike, sapping them of free cash to splash which hits the business’ revenues.
To top off this depleting cycle the banks are busy reducing the risk of their lending books by winding in the amount of lending to small businesses.
You’re going to need an ice pack for those bruises. In the freezer there’s the option to fix your rates, pay down some of your business’ debt with any spare funds, or call the bank manager and see if he has any relief in his fridge.
But these fixes all avoid the bigger problem, having to take out a business loan from the big guys in the first place. Depending on what you do and who you talk to, here are 3 possible alternatives to paying 7.5% plus to the man.
1. Leasing. If it’s equipment your business needs then look into leasing it instead. Avoiding the large capital outlay of buying equipment outright side-steps a bank loan and frees up cash for more constructive pursuits than servicing debt.
2. Debtor financing. It allows businesses to access up to 90% of the value of their outstanding invoices and if well managed can help smooth the all important cash flows. While less common than it used to be, it could be worth your while looking around for a lender that does offer it.
3. Capital raising. Obviously hitting up stock markets is out of the reach of most small businesses, but tapping shareholders or angel investors for some capital is another alternative to the bank manager. In today’s exciting start up environment, there are angel investors about willing to consider taking an interest in small business ventures with potential.
These are by no means new ways to approach your capital condition, but maybe less considered angles worth taking another look at in a tough interest rate environment.
By taking your business away from the bank you can administer a bit of punishment yourself.