There is a peculiar tension running through the Australian economy right now. On paper, growth is softening and confidence is patchy. Yet the appetite for credit among business owners has not faded at all. If anything, the businesses we speak with are thinking harder than ever about how they fund their next move, because the cost and availability of capital have rarely felt this finely balanced. For anyone carrying debt, planning an expansion or simply trying to keep working capital healthy, the second half of 2026 is shaping up to be a period where funding decisions matter more than usual.
We want to walk through what is actually happening with interest rates, where the banks disagree, and what it all means for the everyday decisions a business owner or CFO has to make. None of this is about panic. It is about being prepared.
Where the cash rate really sits
The cash rate has been holding at 4.35 per cent, and this is where the story gets interesting, because the major lenders no longer agree on where it goes next. Three of the four majors now believe the rate has peaked. Their view is that we sit at the top of the cycle for an extended period, with the first cuts not arriving until somewhere in early to mid 2027. That is the more comfortable scenario for borrowers, and it is the one that gets the most airtime.
But it is not the only view. Westpac has held firm on a forecast of two further increases this year, pencilling in a rise at the August meeting and another in September, each of 0.25 per cent. Its economists have grown more confident about August in particular, pointing to inflation and labour market data landing broadly as expected and to central bank communication that has leaned towards acting sooner rather than later. The September move is described as less certain than it was earlier in the year, with credible scenarios where a second increase comes later or not at all. Bendigo Bank has also flagged that one final hike before the end of 2026 looks likely.
So we have a genuine split. Some of the country’s largest lenders think the tightening is done, while others think there is more to come. For a business owner, that disagreement is the whole point. When the experts cannot align, planning around a single confident prediction is a mistake. The sensible approach is to make sure your business can absorb another 0.25 or 0.50 per cent if it lands, while being positioned to benefit if it does not.
The oil price wildcard
Part of what is keeping a rate rise on the table is something well outside Australia’s control. Renewed conflict in the Middle East, including strikes on Iranian targets and disruption around the Strait of Hormuz, has pushed oil prices up sharply. That matters because the Reserve Bank’s thinking has shifted on how it treats these kinds of shocks.
The usual approach is to look through short-lived spikes in commodity or shipping costs, treating them as noise as long as inflation expectations stay anchored. The concern now is that a longer or more complicated shock changes how households and businesses think about future prices, and at that point looking through it becomes the wrong call. In plain terms, if higher energy costs feed through supply chains and start to lift inflation expectations, the case for tightening strengthens. The board has been clear that persistent inflationary pressure could require rates to move higher.
It is worth remembering how the last inflation episode played out. Coming out of the pandemic, unemployment briefly fell to around 3.5 per cent and headline inflation climbed to 7.8 per cent, forcing aggressive rate increases to bring things back under control. Nobody is forecasting a repeat, but that experience explains why the Reserve Bank is cautious about declaring victory too early, and why it may prefer to move earlier and more firmly if a supply shock looks like it is sticking.
When cuts might finally arrive
The more encouraging part of the picture is that the banks are starting to converge on when relief comes, even as they argue about the near term. Westpac has brought forward its expectation for the first cut to August 2027, a full year earlier than it previously thought, while cautioning that the easing will be gradual and dependent on the data. It expects a tentative pace of around 0.25 per cent per quarter once cuts begin. ANZ has pencilled in two 0.25 per cent cuts in August and November 2027, pointing to an economy already cooling under the weight of higher borrowing costs.
The through-line is that even the more optimistic forecasts do not have rates falling meaningfully until well into 2027, and then only slowly. For any business modelling its interest costs, the realistic assumption is that money stays expensive for a while yet. Betting on quick relief is not a strategy.
What this means for how you fund the business
Here is where the interest rate story connects to a shift we are seeing on the ground. Despite all the pressure, demand for business credit has held up strongly. One non-bank lender recently reported a 12.5 per cent quarterly jump in settlements and a 5.7 per cent rise in average deal size, and roughly 30 per cent of small and medium businesses expect to seek external funding over the coming year (Prospa). Businesses are not retreating. They are funding through the uncertainty, and they are getting more thoughtful about how they do it.
What has changed is the shape of that funding. The old model of walking into a bank for a single loan is giving way to something more layered. We are increasingly helping clients build a mix that fits the way the business actually runs, rather than forcing one product to do everything. That might mean asset finance to buy equipment, a commercial loan to fund an expansion, and a line of credit sitting behind it all to smooth out working capital and bridge the short gaps that every business hits. The demand for ongoing access to capital rather than one-off funding is real. One lender we work alongside now sees around 70 per cent of its volume flowing through line of credit products (Bizcap).
The other clear trend is timing. The businesses coming through the strongest are the ones establishing facilities before they need them, not scrambling once cash flow tightens. There is a world of difference between arranging finance from a position of strength and doing it under pressure. Lenders price risk, and a business that lines up its funding early, while the numbers look healthy, almost always gets a better outcome than one that waits until the pressure is visible in the accounts.
The pressure is not spread evenly
It is worth being honest that these conditions are not landing equally. Newer and larger businesses are the most active borrowers, with those turning over 1 million dollars or more the keenest to access funding, while the smallest operators and sole traders are both more exposed and less prepared. Sole traders are roughly twice as likely to have no cash reserves to fall back on. If your business sits at the smaller end, that is not a reason to feel discouraged, but it is a strong reason to get your funding structure sorted before conditions tighten further.
We are also seeing steady activity across professional services, healthcare, transport and logistics, construction, manufacturing and property. Developers in particular are needing more sophisticated structures as projects grow more complex and equity requirements stay high, which is part of why private capital has become such an important piece of the funding landscape where speed or timing is critical. Established family businesses are getting more strategic too, looking at how their balance sheet can support acquisitions, succession or expansion rather than simply refinancing what is already there.
Where to from here
The common thread through all of this is that the businesses navigating 2026 well are the ones treating funding as a strategy rather than a transaction. Rates may rise again or they may hold, but either way, money is going to stay dear for a good while, and the businesses with the right structure in place will have far more room to move than those left reacting.
If you are carrying debt, weighing up an expansion, or simply want to know whether your current funding setup can handle another rate move, we are always happy to talk it through. A short conversation now, while you have options, is worth a great deal more than a rushed one later.
And if you have been meaning to review your working capital or set up a facility before you actually need it, that is exactly the kind of forward planning that tends to pay off. We would welcome the chance to map it out with you.
This article is general information only and does not take into account your personal circumstances. It is not financial, tax or credit advice. Please seek advice tailored to your situation before making any decisions.
