The Council of Small Business Organisations Australia (COSBOA) has highlighted the threefold impact of today’s 25 basis point increase in the cash rate to 4.85 per cent, with small businesses facing further pressure from weaker consumer spending, higher borrowing costs and increased household expenses at a time when they have little financial buffer left.
COSBOA CEO Skye Cappuccio said the consequences of higher interest rates will be felt quickly across the sector.
“Today’s rate rise is a hit for small business that arrives from three directions at once,” Ms Cappuccio said.
“Customers will spend less, business loans will cost more and, for many owners, their home mortgage will cost more too.
“Inflation at 4.3 per cent is hurting everyone, including small businesses that have been absorbing higher costs for some time.
“We recognise the difficult job the Reserve Bank of Australia (RBA) has. At the same time, governments need to do everything they can to ease other pressures on small business, starting with not adding to them.”
Ms Cappuccio said the first impact is weaker consumer spending, as households with variable-rate mortgages face higher repayments and cut back on discretionary purchases.
“Small businesses, particularly in retail, hospitality and personal services, will be among the first to feel the impact. They will see it at the till,” Ms Cappuccio said.
The second impact will be higher business borrowing costs, with any increase passed on by lenders adding to costs already elevated by previous rate rises.
“For a business growing no faster than inflation, higher borrowing costs come straight out of already tight margins or the owner’s pay,” Ms Cappuccio said.
The third impact is particularly acute for small business owners, whose business and household finances are often closely connected. Around half of small business credit is secured against residential property, meaning many owners can be exposed to higher interest costs across both their business and household finances.
COSBOA and Square’s latest State of Small Business Report found revenue for the typical Square seller grew by just 3.9 per cent over the year, compared with inflation of 3.8 per cent. It also revealed that 42.9 per cent of small business owners reported working longer hours, with one in four working more for the same or less pay.
“These findings show small businesses are working harder just to hold their ground. With growth barely keeping pace with inflation, there is little financial buffer left to absorb another increase in costs.”
Ms Cappuccio said the Federal Government’s upcoming Mid-Year Economic and Fiscal Outlook (MYEFO) provides an opportunity to demonstrate spending restraint and take practical action to reduce cost pressures on small business and improve productivity.
“We need to see reduced government spending, alongside practical steps to help small businesses without adding further pressure to the Budget,” Ms Cappuccio said.
“Government must start by not making things worse. Small businesses are already facing additional costs and complexity from Payday Super and the card surcharge ban. Proposed changes to discretionary trust taxation and the Digital Duty of Care Bill will amplify this pressure – small businesses can’t afford for these proposals to go ahead as drafted.
“Rising energy costs also need attention. There are practical options available to help small businesses manage these costs, and governments should be making them a priority.
“We also need a stronger focus on productivity. Productivity growth is what allows businesses to absorb rising costs without continually raising prices.
“That means committing to a 25 per cent reduction in the cost of regulation and making practical changes to remove unnecessary red tape and duplication.
“It also means supporting practical AI adoption that helps small businesses do more with the same limited hours and resources.
“Small business owners have shown repeatedly that they will adapt, work harder and find a way through difficult conditions. But their financial buffers are running low, and they cannot be expected to absorb every additional cost indefinitely.
“Today’s rate rise reinforces why governments must focus on the pressures they can control – reducing spending, easing business costs, cutting unnecessary regulation and supporting productivity.”
