Tuesday’s increase was ‘a hit for small business that arrives from three directions at once’ warns COSBOA chief
Most of the attention after Tuesday’s rate hike has been on what it means for mortgage repayments. But small business owners are being hit from three directions at once: customers are spending less, business loans cost more and, for many, the mortgage on the family home is rising too.
The Reserve Bank of Australia (RBA) board voted 6–3 on Melbourne Cup day to lift the cash rate by 25 basis points to 4.85%, the fifth increase this year. The move came a month after the board’s unanimous decision to push the cash rate to 4.6%.
Council of Small Business Organisations Australia (COSBOA) chief executive Skye Cappuccio (pictured) said Tuesday’s increase was “a hit for small business that arrives from three directions at once. Customers will spend less, business loans will cost more and, for many owners, their home mortgage will cost more too”.
Small businesses also have little room to absorb it. COSBOA and Square’s latest State of Small Business Report found revenue for the typical Square seller grew by just 3.9% over the year, compared with inflation of 3.8%.
Hit one: customers spend less at the till
The first squeeze comes through weaker consumer spending, as households with variable-rate mortgages cut back on discretionary purchases to meet higher repayments.
“Small businesses, particularly in retail, hospitality and personal services, will be among the first to feel the impact. They will see it at the till,” Cappuccio said.
The RBA’s updated forecasts, released alongside the decision, suggest that pressure will build slowly rather than ease quickly. Growth for 2027 has been revised down from 1.6% to 1.3%, and unemployment is projected to reach 5% and then 5.1% in 2028.
Hit two: business borrowing costs climb
The second squeeze is the cost of business debt. Any increase lenders pass on adds to borrowing costs already lifted by four earlier rate rises this year.
“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.
For many owners, that pressure is already showing up in their hours. The State of Small Business Report found 42.9% of owners were working longer hours, with one in four working more for the same or less pay.
Hit three: the family home
The third squeeze is the hardest to see from the outside. According to COSBOA, around half of small business credit is secured against residential property, so a rate rise can reach the same borrower through two loans: a variable home loan and business lending backed by that same home.
On the home loan alone, the Mortgage & Finance Association of Australia (MFAA) estimates the rise could add approximately $119 a month to repayments on the national average new owner-occupier loan of $731,000, if passed on in full.
The value of the home behind that lending is also falling. Commonwealth Bank now expects national dwelling prices to fall around 14% from their March peak, which would be the steepest decline in the 45-year history of the monthly price series. National values are already 6.7% below that peak, after a 1.2% fall in October alone.
CBA estimates that Tuesday’s higher cash rate profile alone will cut around two percentage points from 2027 price growth, compared with a scenario where rates had peaked at 4.6%. The bank is forecasting peak-to-trough falls of around 18% in Brisbane and Perth, 16% in Sydney and 13% in Melbourne and Adelaide.
For owners who use home equity to secure business finance, that means less room to borrow, refinance or restructure just when they may need it most. CBA has also flagged a growing risk of negative equity for borrowers who bought near the peak with small deposits.
Easing the squeeze
A client who runs a business and holds a home loan needs a review that looks at both sides of their finances, not two separate conversations.
The MFAA’s August Market Sentiment Survey found 96% of brokers had helped clients secure a discount from their lender over the previous six months, and 95% had assisted with refinancing. For small business clients, that work can address all three squeezes. A sharper home loan rate eases household cash flow. Better-structured business lending protects margins. A review of whether either debt should be separated from the family home reduces exposure to falling equity.
Where refinancing isn’t an option, early contact with the lender matters. MFAA chief executive Anja Pannek said brokers can help clients “understand their position and, where repayment assistance is needed, engage with their lender early”.
Brokers who mainly write residential loans may also want to build referral relationships with commercial and asset finance specialists. Business owners under pressure are more likely to need advice on both fronts.
How long will the squeeze last?
CBA expects the RBA to hold the cash rate at 4.85% before cutting by 25 basis points in August and November 2027, later than it had expected in September. For small business owners exposed on all three fronts, that leaves at least nine months before any relief arrives.
