Now that the long-anticipated interest rate cut is here and another likely, there’s never been a better time for brokers to cut their commercial clients a sharper deal
As February’s interest rate relief rolls through the Australian economy, business owners and consumers are breathing a collective sigh of relief. What’s more, lower rates herald an expanded opportunity set for Australian businesses and their brokers. Catherine Birch (pictured, right), senior economist, ANZ Research, shares what she’s seeing on the horizon.
“Income tax cuts are lifting disposable income generally, so the cuts won’t be enough to stimulate the economy, rather just enough so that interest rates don’t restrict growth and demand anymore.”
“We're also still seeing quite a bit of resilience in the labour market – unemployment low at around 4.0%. A lot of businesses are reporting that it's still quite hard to find enough skilled, suitable labour to do what they need to do,” Birch adds. This is motivating some small- and medium-sized businesses to invest in labour-saving equipment.
“The outlook for 2025 is cautiously optimistic. In addition to income tax cuts coming through for households – supporting demand for discretionary goods and services – we've also had a higher level of demand in some areas from strong population growth,” Birch comments.
“Inflation has also fallen low enough that wages growth now exceeds inflation, giving some households the ability to spend more. And interest rate cuts may provide a confidence boost not only for households but also small and medium businesses,” Birch says.
“We're expecting that gross domestic product (GDP) growth will slowly recover through 2025. We could also see a pickup in housing construction and demand for new homes. Other sectors likely to do better include retail and manufacturing – as they are quite sensitive to interest rates,” Birch asserts.
The outlook for business investment is also positive, as higher demand may create an incentive for business owners to invest in capacity-expanding equipment. “Now with rates coming down, the Australian economy should be going into an upswing, and forward-looking businesses are preparing. They don't want to get caught out – as some did because of the COVID-19 pandemic – where demand picked up and businesses weren't able to service it,” Birch says.
Untapped opportunities for brokers
As economic conditions improve, now’s an ideal time to review your clients’ finance arrangements – with getting them a sharper interest rate topping the list. In most cases, brokers will be able to unlock much better terms for their clients.
Yet refinancing is an under-realised opportunity.
Rob Turner (pictured, left), senior business banking manager, SME Banking, ANZ, reveals, in his experience, that only about 20% of commercial and asset finance loans are for refinancing. As Turner observes, “There's a huge business opportunity for brokers out there.”
With so much going on in any business, owners don’t have time to check they’re getting the best finance deal. And that’s where brokers shine. Brokers are uniquely positioned to point out how much money a business can save.
Working with the Banker to understand the full picture of the business’ needs and opportunities will help them to determine the right loan structure and rates, which could help save businesses time and money.
According to Turner, brokers should look for business owners who have:
- Lending with a second or third tier lender. A business is likely to get a much better rate by refinancing with a tier one lender
- Interest-only periods maturing soon. Refinancing creates the opportunity to set up a new interest-only period and a new term
- A loan review coming up. Refinancing will often provide better terms than a review by the incumbent finance provider
- Balloon or residual payments. Vehicle or asset finance arrangements will often have terms of three years with the business choosing a 30%, 40% or 70% balloon payment. There’s an opportunity to refinance the balloon residual at the end of the term
- Capital growth in their securing assets. Refinancing with increased security may decrease interest rates and increase the loan term allowing for more efficient cash flow
Another refinancing door opener is where a business owner has been asked to get an asset valuation by their current lender. Also, where the securing assets were considered ‘specialised’ when the loan was written but are now considered more conventional.
Why refinancing is fast and easy for brokers and their clients
Refinancing through a purpose-built solution such as ANZ’s Rapid Refinance means that the credit decision process is simple and quick – by design.
All that needs to be provided is a recent repayment history, such as 12 months of bank statements, to prove serviceability together with a completed application form declaring the trading business’ financial data.
In Turner’s experience, this means refinance applications can be “submitted and approved with letters of offer issued within 72 hours.”
Other refinancing strategies for brokers
Beyond the immediate benefits of a rate cut for business cash flow, Turner also highlights other potential gains from refinancing:
- Cash out. For example, a business with a commercial property loan may need to make improvements to the property. “The owner may be able to take out an extra $100,000 as part of the application,” Turner says. “That puts cash in the owner’s pocket to complete property improvements or reimburse capital introduced.”
- Lengthen the loan term. Extending the loan term is an effective tactic to reduce monthly repayments. “If you can take a seven-year term, for example, and extend it to a 30-year term, this can have a massive difference on cash flow,” Turner says.
Learn more
Lower interest rates and an improved economic outlook mean that now is a great time for brokers to talk to their clients about refinancing. Speak to your Broker Account Manager today about Rapid Refinance here.
