Managing Your Business Through Interest Rate Rises and Inflation— How a Caveat Loan Might Help

By: Aaron Robbins0 comments

If your business is feeling the pinch with rising interest rates and expenses, you might be able to benefit from a caveat loan.

Why are expenses rising?

In short, expenses are rising due to inflation. But what’s driving inflation?

Business expenses and the cost of living have been rapidly increasing all over the globe; Oil, fuel, wages, transport and logistics are just a few of the commodities that business owners are struggling to keep up with.

As at the June 2022 quarter, the Consumer Price Index (CPI) had risen 6.1 per cent annually, and 1.8 per cent quarterly. This was the second highest rise since the introduction of the Goods and Services Tax (GST) in 2000.

While the inflation rate generally ebbs and flows according to economic factors, the beginning of the COVID-19 pandemic in early 2020 triggered a chain of events that saw the inflation rate spike.

Expenses were heavily impacted by the following events:

Factory closures

With China being Australia’s most significant trading partner, we felt the shockwaves all the way over here when Chinese factories pumped the brakes on their manufacturing operations.

Factories in China were the first in the world to slow down or completely stop. This caused a shortage in supply and a surge in demand — which always leads to a price rise in economics.

As we know, as COVID-19 spread from country to country, it left a wake of destruction as more and more of Australia’s trading partners were slowed down.

Reduction in global shipping capacity

With factories around the globe sitting dormant or opperating at reduced capacity, shipping containers were stacked at ports, sitting idle.

With movement of containers becoming static, the world was facing a container shortage, so manufacturers who wanted to ship their goods, couldn’t.

Air freight isn’t a financially viable option for most importers or exporters, and with international travel almost non-existent at the beginning of the pandemic, there weren’t even any flights to move international goods.

Natural disasters

Tsumanis, earthquakes, hurricanes and bushfires have wreaked havoc all around the world, interupting supply chains as they go, but even right here in Australia, the spate of natural disasters over the last couple of years has felt unrelenting.

Drought, bushfires and flooding stopped businesses in their tracks and significantly slowed production of food and other goods.

The war in Ukraine

As if the global economy didn’t have enough influencing factors already, Russia’s invasion of Ukraine added more turbulance.

We’ve seen higher fuel prices, trade sanctions, and a rise in wheat, corn and precious metal prices.

Why are interest rates rising?

It’s simple economics; interest rates are rising because the Reserve Bank of Australia are increasing the cash rate to try to control the level of inflation.

Inflation is measured by the Consumer Price Index (CPI), which shows how much consumer prices have risen.

The annual CPI inflation has risen to 6.1%, which is more than double the RBA’s inflation target of 2-3 per cent over the medium term.

But why would the RBA increase the cash rate when prices are already soaring? When the cash rate is increased, lender’s interest rates generally increase too. This raises the costs of borrowing, and also incentivises saving (interest rates on loans are higher, but so are savings accounts and term deposits).

The idea is that higher interest rates will lead to more Australian’s having to reduce their level of spending and increases savings in the economy. If people aren’t spending, demand for goods goes down, and so must the price — prices going down is the exact opposite of inflation.

How inflation might impact your business

Everything discussed in this article so far can have a direct impact on your business.

Things to watch out for:

  • Fluctuations in monthly sales figures.
  • Increases in cost of supplies.
  • changes in expenses such as utilities and wages.
  • Profit margin fluctuations.

If you notice instabilities in these metrics, you may need to take action to ensure you’re managing supply and demand appropriately to maintain the profit margin your business needs.

How to sail smoothly through rising business costs

Review your expenses

Pull out your list of business expenses and try to identify any opportunties to save some money.

  • Reguarly reviewing expenses such as insurance, electricty, gas, phone and internet, can potentially save you thousands of dollars per year. Some times, you don’t even need to switch provider — simply calling your current provider and asking for the best deal can be enough.
  • This can also be true with your commercial lender or mortgage provider. If you ask for the best interest rates and deals, a lot of the time they can offer a lower rate to help you save interest.
  • If you are leasing a property, it might pay to negotiate different terms to see if it’s possible to get a better deal.

Review how you spend your time

If you are spending large amounts of time of repetitive, menial tasks, you may have an opportunity to change your processes and find a more cost effective solution.

Outsourcing tasks like marketing, accounting, human resources, pay roll, administration and bookkeeping could see you hire a professional who excels at the tasks, and frees up time for you to focus on more impactful areas of the business which can generate more revenue.

Review your prices

If you need to raise your prices to maintain your profit margins, one benefit of inflation and prices rising across the board is that your customers are likely expecting it already.

  • If you offer different products or services, identify which area you get the best profit margin from. This may dictate the direction your business takes.
  • Have a think about how you can increase the profit margin on any low-margin offerings.
  • If your costs are increasing and you can’t reduce your expenses in any other areas, ensure you increase your prices proportionately to the increase in your costs, if it’s feasible.

Utilise commercial finance

Having access to quick and easy finance when you need it can help to smooth out cash flow concerns and ensure your business can take on opportunities as they arise.

Flexible access to working capital means you can manage your business through rising interest rates and costs, keeping on top of expenses while you adjust.

When you need business loans, traditional bank loans may be tricky for business owners to get — especially if income is unstable.

A caveat loan might be the answer.

Caveat loans to help manage rising business expenses

Short term caveat loans are a simple finance solution that can allow you to access funds quickly to be used as a short term business loan.

If you have real estate property (commercial or residential property) with sufficient equity, a caveat loan allows you to tap into that equity to fund business purposes.

A short term caveat loan could be the affordable finance solution you need to manage business cash flow concerns.

Caveat loan FAQs

Can I get a caveat loan if I have bad credit history?

Caveat loans may be the perfect finance product for business owners with bad credit.

The caveat lending criteria through private lenders is much more flexible than traditional lenders, so there is no need to access your credit file.

To access a caveat loan, you simply need sufficient equity in real estate property and the means to repay the loan amount.

We help you work out repayment schedules that suit your cash flow.

How are caveat loans secured?

Fast caveat loans are secured by Australian real estate property — either residential or commercial property.

Overseas properties unfortunately cannot be used as the security property.

How fast can I access a caveat loan?

With urgent caveat loans, you can access the money as quickly as today!

If you unsure of your suitability for a caveat loan, you may like to seek legal or financial advice.

Is a caveat loan like a second mortgage?

The fundamental difference between a second mortgage and a caveat loan is, a mortgage is registered on title as security, so the lender can take ownership of the asset if the borrow fails to repay the loan. Whereas a caveat sits behind the mortgage, removing the owners ability to sell the property while the loan amount is outstanding.

At Diverse Funding Solutions, we can help you get a caveat loan quickly. Contact our friendly team to discuss if a caveat loan could be the right move for your business, or apply for a caveat today.

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