- Lower interest rates can reduce borrowing costs for SMEs, improving cash flow and making it more affordable to invest in growth opportunities.
- Economic stimulation and rising consumer confidence are expected outcomes, which could drive increased demand—particularly in sectors like retail, hospitality, and construction.
- Now is a strategic time for small businesses to review loans, optimise cash flow, and assess growth plans, as competitive lending conditions and stronger economic sentiment create new opportunities.
The RBA has now cut interest rates three times in 2025—most recently in August, bringing the cash rate to 3.6% [1]. Since then, the bank has held rates steady in September and again in December.
Back in May, we broke down what the first cut meant for Australian SMEs and, with this latest move, the picture has shifted again.
So, how exactly can the combined rate reductions impact small businesses like yours? Let’s break it down.
2025 started with 3 rate cuts
February 2025: First cut to 4.10%
At its February meeting, the RBA made its first move since 2023, lowering the cash rate by 25 basis points to 4.10%—in an effort to ease pressure on households and help stimulate business investment.
May 2025: Second cut to 3.85%
In May 2025, the central bank delivered its second rate cut of the year, dropping the official cash rate to 3.85%. The goal? To further reduce borrowing costs and provide a small (yet meaningful) boost to disposable income and business cash flow.
August 2025: Third cut to 3.6%
Fast forward to August, and the RBA cut the cash rate once more, this time to 3.6%.
This decision was mainly shaped by continued moderation in inflation, slower consumer spending, and rising underemployment—and the goal is to promote a healthy, sustainable pace of growth, without sparking excessive inflation or economic instability.
How the 2025 interest rate cuts affect SMEs
Economic stimulation
Rate cuts are designed to boost economic activity and encourage both business investment and consumer spending.
For many businesses—particularly in sectors like retail, hospitality, product-based services, and construction—this can lead to stronger demand and new revenue opportunities.
Now more than ever, business owners should be ready to respond to increased market activity, whether that means diversifying supply chains, hiring staff, adjusting pricing, or refreshing their marketing strategy.
Rising confidence among customers and businesses
Confidence plays a powerful role in economic performance. The more confident customers are in their financial security, the more likely they are to spend.
On the other side of the coin, the more confident business owners are in future demand and stable economic conditions, the more they're inclined to invest and expand.
The result? A positive feedback loop that benefits SMEs across sectors, as rising confidence fuels increased activity from both consumers and businesses.
We've already seen improvements in customer and business sentiment, with recent upticks in indicators like the Westpac–Melbourne Institute Consumer Sentiment Index and the ANZ-Roy Morgan Consumer Confidence Index [2][3].
With the combined rate reductions, this upward trend is likely to continue—supporting greater economic momentum in the months ahead.
Lower borrowing costs
Perhaps the most immediate and tangible benefit of an interest rate cut is the potential for lower borrowing costs.
New loans are getting cheaper, with increased competition among lenders—particularly non-bank lenders—driving rates down in recent weeks.
For small businesses, this shift doesn't just mean access to funding at a lower cost. It means better cash flow, reduced pressure on working capital, and more opportunities to pursue growth without overstretching resources.
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Preparing for a rate cut
The updated interest rate can offer significant financial advantages to Australian businesses.
And, while it takes time for consumer spending to change, planning now means you’ll be better positioned when momentum picks up.
Here's how to get ahead of the curve:
- Review your loan portfolio. Are your existing loans still the most suitable for your business needs? Could you refinance to a lower rate? Or perhaps shift to a more flexible facility? With lender competition heating up, better terms may already be available.
- Optimise your cash flow. Interest rate drops may lead to cash flow fluctuations and increased market activity, both of which you want to be prepared for. Take this opportunity to forecast your cash flow, set new budget priorities, and explore funding options such as lines of credit, trade finance, or invoice finance. Remember, taking out a business loan at a reduced rate means lower repayments, and it could help you achieve your goals faster and more cost-effectively.
- Evaluate growth plans. With borrowing becoming more affordable, this may be the right time to revisit or fast-track your growth strategy, whether that means accelerating your expansion timeline, investing in new equipment, or launching a new product line. Look at your long-term goals and assess how lower-cost finance could help you scale more efficiently.
- Speak to a finance broker. Economic shifts don't impact every business the same way. That’s why tailored advice matters. Our team of expert brokers can help you compare lenders and access better deals quickly, so you can stay ahead of market changes and make confident financial decisions. Get in touch today.
Since then, rates haven't shifted
September 2025: Rates on hold at 3.6%
After three cuts earlier this year, the Reserve Bank decided to keep the rate steady at 3.6%. Framed as a "cautious" approach, the move comes as the economy is showing signs of recovery (with wages growing and household spending picking up) but inflation remains more persistent than expected.
December 2025: Rates on hold once again at 3.6%
Similar to September, the RBA has decided to leave rates at 3.6% in the most recent December meeting. This, once again, comes as a cautious move, with data suggesting the risk of inflation may be tilting upward, but not enough for the board to act until it sees the December quarter figures.
Translation? A February rate hike is possible, but not a given. It all depends on what the next round of inflation data shows.
What this means for SMEs
Consumer confidence unlikely to rise heading through holidays
Earlier this month, the ANZ-Roy Morgan Consumer Confidence index dropped 1.6 points to 85.5 and is now 2.9 points lower than a year ago.
Many businesses were hoping a rate cut would give consumers a confidence boost and spur more purchases. But, without that signal, discretionary spending is likely to stay cautious. In other words, SMEs should plan for a steadier, more measured holiday season.
Lenders still pushing to compete before year-end
The upside? Even with the RBA not moving, lenders are still competing. End-of-year pressure means sharp offers are available on working capital, credit lines, and equipment finance, perfect for businesses gearing up for January and Q1 opportunities.
