Small business owners absorbed another blow today, with the Reserve Bank lifting the cash rate by 25 basis points to 4.85 per cent. And according to the Council of Small Business Organisations Australia (COSBOA), this one doesn’t just sting once. It hits from three directions at the same time.
COSBOA CEO Skye Cappuccio didn’t mince words about what’s coming. “Today’s rate rise is a hit for small business that arrives from three directions at once,” she said. “Customers will spend less, business loans will cost more and, for many owners, their home mortgage will cost more too.”
It’s a blunt way of putting it, but that’s the reality for a lot of small business owners right now, people who are copping higher costs as both a business operator and a homeowner, often with no real separation between the two.
Cappuccio pointed to inflation sitting at 4.3 per cent as part of the squeeze. “Inflation at 4.3 per cent is hurting everyone, including small businesses that have been absorbing higher costs for some time,” she said. She was also careful to acknowledge the RBA isn’t working with an easy brief. “We recognise the difficult job the Reserve Bank of Australia 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.”
So where does this actually bite first? Cappuccio broke it down into three stages.
The first is simpler than it sounds: people spend less. As mortgage repayments climb for households on variable rates, discretionary spending is usually the first thing to go. Retail, hospitality and personal services businesses tend to feel that almost immediately. “They will see it at the till,” Cappuccio said.
The second is the cost of running the business itself. Any rate rise that gets passed on by lenders lands on top of costs that were already elevated from previous increases. For a business that’s only growing in line with inflation, there’s nowhere for that extra cost to go except out of the margin, or out of the owner’s own pay. “For a business growing no faster than inflation, higher borrowing costs come straight out of already tight margins or the owner’s pay,” Cappuccio said.
The third hits closer to home, literally. Around half of all small business credit in Australia is secured against residential property, which means a lot of owners are exposed on two fronts at once: their business finances and their household finances, both moving in the same direction.
The numbers back up just how little room there is left to move. The latest COSBOA and Square State of Small Business Report found that revenue for the typical Square seller grew by just 3.9 per cent over the past year, against inflation of 3.8 per cent. The same report found 42.9 per cent of small business owners are working longer hours, and one in four are working more for the same pay or less.
“These findings show small businesses are working harder just to hold their ground,” Cappuccio said. “With growth barely keeping pace with inflation, there is little financial buffer left to absorb another increase in costs.”
With the Federal Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) coming up, Cappuccio said it’s a chance for government to show some restraint and take pressure off small business, rather than add to it.
“We need to see reduced government spending, alongside practical steps to help small businesses without adding further pressure to the Budget,” she said.
She didn’t hold back on where she thinks the pressure is already coming from. “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.”
Energy costs also made her list. “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.”
And productivity, she argued, is the piece that actually gets businesses out of this cycle long term. “We also need a stronger focus on productivity. Productivity growth is what allows businesses to absorb rising costs without continually raising prices.” That, she said, means government committing to a 25 per cent reduction in the cost of regulation, cutting red tape and duplication, and backing “practical AI adoption that helps small businesses do more with the same limited hours and resources.”
Cappuccio closed with a mix of respect for business owners and a warning about how much more they can realistically take. “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.”