The last few months have given business owners plenty to digest. We have had three cash rate rises in quick succession, a federal budget that takes direct aim at investment incentives, and a property market pulling in two directions at once. If you run a business and carry debt, or you are weighing up taking some on, the ground has shifted. Here is how we read the current landscape, and more to the point, what it means for the decisions sitting on your desk right now.
The rate cycle has turned, then paused
After three consecutive increases, the Reserve Bank held the official cash rate at 4.35 per cent this month, its first hold of 2026. The reasoning was straightforward. Inflation is cooling but not beaten. Headline CPI eased to 4.2 per cent in the year to April, down from 4.6 per cent the month before, yet the trimmed mean measure the RBA watches most closely actually edged up to 3.4 per cent, still sitting above the 2 to 3 per cent target band. Add a labour market that has stayed resilient, with unemployment steady at 4.3 per cent, and you have a central bank that wants to see the effect of its earlier moves wash through before it does anything else.
For business owners, the takeaway is that we are most likely in a higher-for-longer setting rather than at the start of a quick easing cycle. Borrowing costs that felt temporary twelve months ago are starting to look like the new normal. If your forecasts and budgets still assume rates drift back to where they were in 2024, they are worth a second look.
The forecasts disagree, and that matters
One of the hardest parts of planning right now is that the people paid to forecast this stuff cannot agree on what happens next. The split among the major banks is unusually wide. One of the big four remains firmly hawkish and has pencilled in two further rises at the August and September meetings. Another has changed its tune entirely, now arguing the peak has passed, that the next move is down, and bringing forward its expected easing to the second quarter of 2027, with the cash rate finishing that year near 3.6 per cent. The remaining two sit somewhere in between, expecting an extended hold before cuts arrive in 2027.
Money markets are not much clearer. Longer-dated government bond yields have settled around 4.6 per cent, and pricing still leaves the door open to one more rise inside the next six months. In other words, the smart money is hedged.
When the experts are this divided, the worst thing a business can do is bet the balance sheet on a single outcome. We are not in the business of predicting the next move, and we would be cautious of anyone who claims certainty. What we can do is help structure your debt so that you are not badly exposed whichever way the next decision falls. For some clients that means splitting facilities between fixed and variable so part of the book is protected and part stays flexible. For others it means simply building more headroom into the cash flow forecast.
Borrowing power has quietly shrunk
Here is the number that does not make the headlines but hits hardest. Lenders no longer assess your capacity at the rate you actually pay. The assessment floor, the rate banks use to stress-test whether you can service a loan, now sits around 9 to 9.25 per cent. So even if your facility is priced in the low sixes, you are being measured against a number well above 9. That gap has widened with every rate rise this year, and it quietly clips how much any business or individual can borrow.
The practical consequence is that finance approved earlier in the year may no longer stand. If you are holding a preapproval from a few months ago and counting on it for a purchase or a project, please do not assume it is still live. We have seen capacity move enough this year that a reassessment before you commit is simply common sense. Better to know now than at settlement.
A property market split down the middle
The national headline still looks healthy. The total value of Australian dwellings reached a record 12.77 trillion dollars in the March quarter, up 11.9 per cent over the year, with the mean dwelling price lifting to 1,111,100 dollars (ABS, March 2026 quarter). But the average hides a market splitting in two. Western Australia, Queensland and the Northern Territory are leading the country on price growth, while the two largest markets have gone backwards. Sydney values fell 2.1 per cent over the quarter and Melbourne 2.3 per cent (Cotality, May 2026), with Victoria the only state or territory to record a fall in its mean price.
Higher rates have also wiped out the affordability dividend those price falls might have offered. The income now needed to service a typical house has jumped, not fallen. A buyer chasing a median house in Brisbane needs roughly 17,000 dollars more household income than they did in January, and a Perth buyer about 16,500 dollars more (Cotality, May 2026). The benefit of cheaper Sydney and Melbourne prices has been swallowed whole by the cost of the debt.
Why does this matter to a business owner who is not buying a home? Because the same forces shape commercial property values, the equity you can draw against, and the appetite lenders show in different regions. If your security sits in a softening capital city market, the valuation that underpins your facility may not be what it was. If it sits in a rising mid-tier market, you may have more equity to work with than you think. Either way, it pays to know where you stand before you need the money.
The budget puts investment incentives in play
The federal budget has unsettled a lot of our clients, and for good reason. The first tranche passed the lower house on 5 June and is now under a fast-tracked Senate inquiry, with the government aiming to have it through before the winter recess in early July. The two changes drawing the most heat are a likely cut to the capital gains tax discount, from 50 per cent down toward 33 per cent or a return to an indexed cost base, and proposed limits on negative gearing that may cap the number of properties eligible for deductions rather than scrapping it outright. Lenders have already begun adjusting their investment-lending policies in anticipation, and the date a property was purchased now matters for how it is treated.
Modelling suggests these measures could trim investor returns by 15 to 30 per cent, even though the expected hit to prices themselves is modest, in the order of 1 to 4 per cent. A survey of more than 200 brokers found half reported their small-business clients felt negative about the budget, against just over a third who felt positive.
For business owners, this is not only a property story. Many of us intend to fund our retirement through the eventual sale of the business itself, having ploughed years of earnings back into growth rather than building up other assets. If the capital gains treatment of that sale changes, the maths on when and how you exit changes with it. We are not tax advisers, and the legislation is still moving, so nothing is settled. But this is precisely the moment to be talking to your accountant about structure and timing, and to us about how any of it touches your borrowing.
What we would be thinking about now
Pulling it together, a few decisions deserve attention this quarter. On debt structure, it is worth reviewing whether your current mix of fixed and variable still suits a higher-for-longer world, and whether refinancing or consolidating facilities could ease the monthly load. On expansion, the cost of capital is real, so the timing of a new site, a hire or a capital project should be weighed against genuine headroom rather than hope of imminent cuts. On working capital, a slightly larger buffer makes sense while sentiment is soft and input costs, fuel among them, stay volatile. And on asset finance, if you have equipment or vehicle purchases on the horizon, locking in terms now removes one source of uncertainty from your plans.
None of this calls for panic. It calls for a clear-eyed look at your numbers against the world as it actually is, not as we wish it were.
If any of this has you wondering where your own business sits, we are always happy to run through it with you. A short conversation about your debt structure, your borrowing capacity or your refinancing options often surfaces options you did not know you had. Reach out to Matt for a no-pressure chat whenever it suits.
This blog is general information only and does not take your personal circumstances into account. It is not personal financial, tax or credit advice. Please speak with us and your accountant before acting on anything mentioned here.
