How a Cash Rate Rise Flows Through to Business Loan Repayments

Key takeaways

• The RBA's cash rate target was 4.60% from 30 September 2026; its 2026 schedule has decisions on Tuesday 3 November and Tuesday 8 December, so check the current target before relying on any number here.
• Variable business loans priced off a lender's own reference rate move when and by how much the lender decides.
• Bill facilities reset to the bank bill rate at each rollover, which can move before an RBA decision if markets expect one.
• On interest-only debt, every 0.25 point costs $2,500 a year per $1 million borrowed.
• Principal and interest repayments rise by less than interest-only ones on the same loan, because the balance is falling.
• Rate rises also eat into interest cover covenants; check your headroom before the lender's annual review does.

What happens between the RBA decision and your business loan?

The Reserve Bank sets a target for the cash rate, the rate banks charge each other for unsecured loans that are repaid the next business day. Its cash rate target table shows the target at 4.60% from 30 September 2026, after a 0.25 point rise. The Monetary Policy Board's 2026 meeting dates have decisions on Tuesday 3 November and Tuesday 8 December 2026, each announced at 2.30 pm on the second day of the meeting. This post does not predict either outcome; it explains how a rise, when one happens, reaches your repayments.

For the Board's reasoning, see our explainer on how the RBA sets the cash rate.

Why don’t all business loans move by the same amount at the same time?

Because business loans are priced in different ways, and the loan contract decides which method sets yours.

• Variable loans on a lender reference rate. Many business term loans and overdrafts charge a margin over the lender's own business reference or base rate. The lender decides whether to move that rate, by how much and from when. Our post on why banks do not always pass on the full rate move covers the reasons.
• Bill or BBSW-linked facilities. The rate is the bank bill rate for the chosen period (often 30, 90 or 180 days) at each rollover, plus a margin. The RBA's statistical tables publish daily end-of-day 1, 3 and 6-month bank bill (BAB/NCD) rates sourced from ASX in table F1, and business lending rates in table F7. Because bill rates price what markets expect, they can rise before the RBA moves. Our guide to BBSW and business lending explains the mechanics.
• Fixed-rate loans. No change until the fixed period ends; then the loan reprices to whatever rate applies.
• Hedged loans. A floating loan paired with an interest rate swap behaves like a fixed loan while the swap runs.
• Equipment finance and chattel mortgages. Usually fixed for the full term, so existing contracts do not change; new contracts are priced at the new rate.

What does a 0.25 point rise do to repayments?

For illustration, assume a business loan rate of 8.00% rising to 8.25%. These are example rates, not offers, and real loans may carry fees and different terms.

The interest-only column is simple: 0.25% of the balance divided by 12. On $1,000,000 that is $2,500 a year, or $208.33 a month.

The principal and interest columns rise by less, which surprises many borrowers. On an amortising loan the balance falls over the term, so the extra interest is charged on a shrinking amount, and the recalculated repayment spreads it across the remaining term. On the $250,000 ten-year loan, the extra $33.13 a month adds up to about $3,975 over the full ten years, compared with $6,250 over ten years on the same balance interest-only.

Most businesses hold a mix of facilities, and only some of them move. For illustration, take a business with a $600,000 variable term loan repaid over 10 years, an overdraft averaging $120,000 drawn, and $250,000 of fixed-rate equipment finance. A 0.25 point rise lifts the term loan repayment from $7,279.66 to $7,359.16 a month, or $954 a year; adds $300 a year of interest on the overdraft ($120,000 x 0.25%); and leaves the equipment finance unchanged until it is replaced. The total is about $1,254 a year, or $104.50 a month, rather than the $2,425 a year you would get by applying 0.25% to all $970,000 of debt.

Larger moves scale roughly in proportion. On the $500,000 interest-only loan, a 0.50 point rise adds $208.33 a month and a 1.00 point rise adds $416.67. Test your own facilities in the rate rise stress test calculator; for home loans, our table of how a 0.25% rate rise changes repayments by loan size does the same job.

How do fixed and hedged facilities behave?

Fixing or hedging moves risk, it does not remove it. If rates fall, a fixed or swapped borrower keeps paying the old rate, and ending early can cost money. Many businesses hedge part of their debt and leave part floating so that neither outcome is extreme. A lender or adviser can model the options; ask how break or close-out costs are calculated before you sign.

What else changes when rates rise?

Repayments are the visible part. Two other effects matter more on some business loans.

Interest cover covenants. Many business facilities carry a minimum interest cover ratio (EBIT divided by interest). For illustration, a business with EBIT of $300,000 and $1,500,000 of interest-only debt at 8.00% pays $120,000 of interest: cover is 2.50 times. At 8.25%, interest is $123,750 and cover falls to 2.42 times. At 9.00% it is $135,000 and 2.22 times. If the covenant minimum is 2.25 times, that business is in breach after a one point rise with no change in its trading. Check yours with the ICR and DSCR calculator.

Working capital. Overdrafts and trade facilities are usually variable and reprice soon after a change, and the cost lands on the days the business is already short of cash. If customers stretch their payments at the same time, the drawn balance rises as the rate does. The government's guide to managing cash flow covers forecasting the gap.

How do banks, non-banks and private lenders pass rises through?

A general guide only; individual lenders differ and their policies change. Never assume your facility follows the cash rate exactly. Read the pricing clause, or ask your lender which rate yours is linked to and how often it resets.

What can a business borrower do before and after a decision?

1. List every facility with its rate type, reference rate, margin, reset date and maturity.
2. Price a rise into your budget. Take each variable balance, multiply by the change, divide by 12. Do it for 0.25 and 1.00 points.
3. Check covenant headroom on interest cover and debt service cover at the higher rate.
4. Review the fixed and floating mix before fixed periods or hedges expire, not after.
5. Talk to the lender early if a covenant will be tight. A conversation before a breach is easier than one after.
6. Compare the market if your margin no longer reflects your business's risk. When you are ready, post one business loan request on ADS and 200+ verified lenders and brokers can ask about it.

The RBA explains its framework on its monetary policy pages. Rates checked in this post were current on the date shown at the end; this is general information, not financial advice.

Frequently asked questions

How much does a 0.25% rate rise add to a $500,000 business loan?

For illustration, on a $500,000 interest-only loan it adds $104.17 a month, or $1,250 a year: 0.25% of $500,000 divided by 12. On a principal and interest loan over 10 years, moving from an example 8.00% to 8.25% adds about $66 a month, because the balance falls over the term.

When does a cash rate rise affect my business loan?

It depends on how the loan is priced. A variable loan on a lender's reference rate changes when the lender reprices, which it decides. A bill facility changes at its next rollover. Fixed loans and hedged loans do not change until the fixed period or hedge ends. Check the pricing clause in your facility agreement.

What is BBSW and why does it matter for business loans?

BBSW is the bank bill swap rate, the benchmark for short-term bank bills. Many larger business facilities charge BBSW for the chosen period plus a margin, resetting at each rollover. Because bill rates reflect what markets expect the RBA to do, they can move before a decision. The RBA publishes daily bank bill rates in its F1 table.

Should I fix my business loan rate?

Fixing gives certainty, but you keep paying the fixed rate if rates fall, and ending a fixed loan or swap early can cost money. Many businesses fix or hedge part of their debt and leave part floating. The right split depends on your cash flow, covenants and plans for the debt; ask a lender or adviser to model it.

Can a rate rise put my business loan in breach?

It can if the loan has an interest cover or debt service cover covenant. Higher interest lowers both ratios even when trading is unchanged. In the example above, a one point rise took interest cover from 2.50 times to 2.22 times. Check your headroom and talk to your lender before a test date if it looks tight.

Related reading

• BBSW: The Benchmark Behind Business Lending
• How the RBA Actually Sets the Cash Rate: The Reaction Function
• Business Overdrafts and Working Capital

Sources

• Cash rate target — Reserve Bank of Australia
• 2026 Monetary Policy Board meeting dates — Reserve Bank of Australia
• Statistical tables (F1 money market rates, F7 business lending rates) — Reserve Bank of Australia
• Monetary policy — Reserve Bank of Australia
• Guide to managing cash flow — business.gov.au