We are now past the halfway mark of 2026, and the picture facing Australian business owners is a genuinely mixed one. Confidence is lifting, yet cash flow pressure is building in pockets of the economy. Interest rates have stopped climbing, yet borrowing costs remain the highest many businesses have carried in years. Property values are easing, yet finance for the right asset is still very much available. For anyone weighing up a refinance, an expansion or a large equipment purchase, it is worth stepping back and reading these signals together rather than one at a time.
Rates have paused, but they have not turned
The most important development for borrowers is what the Reserve Bank did not do at its June meeting. After three consecutive increases in February, March and May, the cash rate has been left steady at 4.35 per cent, and the tone from the central bank suggests it intends to sit there for a while. The board made clear that policy needs to stay restrictive while inflation remains materially above target, and its own forecasts point to inflation taking roughly another two years to settle back into the target band.
The major banks read the June minutes as hawkish, meaning the Reserve Bank is keeping its options open on the upside rather than signalling cuts. That said, the consensus among bank economists is that the cash rate has most likely peaked. The prevailing view is that rates will hold around current levels for the next year or so, with the risk of one more increase only if inflation proves stickier than expected. Nobody is forecasting near-term relief.
For a business owner, the practical takeaway is that the era of cheap money is not returning soon, and pricing your funding on the hope of imminent cuts is a risky assumption. If your facilities are variable and fully exposed to further movement, now is a sensible moment to look at how much of your debt you want protected. Fixing a portion, splitting between fixed and variable, or simply stress-testing your repayments against another 25 to 50 basis points can turn an uncertain rate outlook into a manageable one.
Confidence is back, but the recovery is uneven
There is real encouragement in the latest business surveys. Business confidence has climbed back into positive territory for the first time since late 2022, its fourth straight quarter of improvement, while business conditions rose to their highest level since mid-2024. Profitability swung from negative to positive over the quarter, forward orders returned to positive territory, and confidence improved across every state, with South Australia recording the strongest lift at 16 points.
The improvement was broad, with manufacturing, retail, and finance and property services leading the way. Retail price growth eased to its slowest pace since mid-2020, which is a welcome sign that the worst of the cost surge may be behind us.
The caution is that sentiment and reality are not always the same thing. Wage costs and margin pressure remain the two issues businesses nominate most often as weighing on them. Labour cost growth held steady, purchase costs stayed firm, and many operators are still managing elevated interest expenses at the same time. In other words, confidence is rising off a low base, and the businesses feeling it most are those that have already worked through their cost pressures rather than those still in the thick of them.
Cash flow is where the strain is showing
Beneath the improving mood, the credit data tells a more sober story. Late payments among small and medium businesses have climbed to their highest level in six years, and tax defaults recorded with the Australian Taxation Office continue to rise. Payment defaults more broadly have picked up in recent months, which tends to be an early warning that financial stress is building before it shows up in formal insolvency numbers.
Interestingly, first-time insolvencies actually fell to a two-year low in May, but the rise in payment defaults and tax defaults suggests pressure is still accumulating quietly under the surface. That stress is also becoming more concentrated. Waste services, for example, is now running insolvencies at more than three times the national average, a reminder that headline figures can hide sharp differences between sectors.
Two structural changes are worth flagging for cash flow planning. Payday Super reforms and higher minimum wages are both landing on employers, and each has a direct effect on the timing and size of outgoings. Businesses that map these changes into their cash flow forecasts now, rather than reacting when the bills arrive, will be in a far stronger position.
This is precisely the environment where working capital finance earns its keep. A well-structured overdraft, debtor finance facility or line of credit is not a sign of trouble, it is a buffer that lets a healthy business absorb slower-paying customers and lumpy costs without starving the operation of cash. It is also notable that asset-backed finance has become mainstream, with close to half of Australian businesses now using some form of it. Funding equipment, vehicles or other assets against their own value, rather than tying up general cash reserves, is an increasingly standard way to keep the balance sheet flexible.
It is worth remembering, too, that the major banks are not the only option. Non-bank and specialist lenders have continued to broaden their appetite for business and commercial lending, often with more flexibility around serviceability and security than the larger institutions. When a bank moves too slowly or says no, that flexibility can be the difference between capitalising on an opportunity and missing it.
Property is easing, and that changes the calculation
The housing market has turned, and while much of the commentary focuses on homeowners, the shift matters for business owners too, particularly those who borrow against residential property or hold commercial assets.
National dwelling values fell 0.4 per cent in June and 0.7 per cent over the quarter, the sharpest monthly decline since December 2022. Sydney led the falls, down 1.2 per cent for the month and 3.2 per cent over the quarter, followed by Melbourne. Even the strong performers cooled sharply, with Brisbane growth slowing to 0.3 per cent from an average of 1.9 per cent earlier in the year, and Perth easing to 0.7 per cent. Auction clearance rates have slipped into the low 40s, sales volumes are down more than 16 per cent on a year ago, and listings are around 11 per cent higher, all of which point to buyers regaining the upper hand.
Several forces are behind the slowdown, including the recent rate rises, ongoing affordability and cost-of-living pressure, and the property taxation changes announced in the federal budget, whose full effect on investor demand is still emerging. Regional markets have held up better, with regional Western Australia still growing solidly, and units have softened less than houses.
For business owners, a cooling property market cuts both ways. If you use residential equity to support business borrowing, falling values can trim your available security, so it is worth knowing where your loan-to-value ratio sits before you need to draw on it. On the other hand, a softer market and less competition can open a window for those looking to acquire premises or investment property, and first home buyers among your staff may find conditions easing into 2026. Commercial valuations have grown more cautious as well, so going in with realistic expectations on both value and serviceability matters more now than it did a year ago.
Bringing it together for your next decision
Put the pieces side by side and a clear theme emerges. Borrowing costs are high and holding, cost pressures are real but easing at the edges, and asset values are softening. This is an environment that rewards planning over reaction.
If you have been waiting for rate cuts before refinancing or restructuring, the data suggests that wait could be a long one, and there may be more value in optimising the debt you already carry. If you are planning to expand or invest in equipment, funding is available, and locking in the right structure now can matter more than trying to time the market. Getting the mix of facilities right, and matching each to the job it is doing, often delivers more value than chasing a slightly lower headline rate. And if cash flow is the pressure point, the tools to smooth it out are readily accessible and worth arranging before they are urgently needed.
Every business sits in a different part of this picture, and the right move depends on your sector, your balance sheet and your plans for the year ahead. If you would like to talk through how these shifts affect your particular situation, we are always happy to have a no-obligation conversation and map out the options. Whether it is reviewing your current facilities, exploring working capital, or weighing up a property or equipment purchase, a short chat now can save a lot of pressure later.
This article is general information only and does not take into account your personal circumstances. It is not personal financial, tax or credit advice, and you should seek advice tailored to your own situation before making any decisions.
