With the RBA lifting rates again, and the banks signalling the possibility of further increases ahead, many businesses are reassessing how their finance structure will hold up over the next 12-36 months. Rising rates don’t just affect the cost of borrowing; they affect cash flow, budgeting accuracy, and the level of certainty businesses need to plan confidently.
At Allfin, we look beyond the question “what’s my rate?” and focus on the structure of your finance. The right structure can create more stability, more flexibility, and in some cases, cash‑flow relief in the first year. Drawing on my background – Formerly with NAB as a Director in Financial Markets, we regularly work with clients to explore rate strategies that smooth out volatility while keeping long‑term costs aligned.
Two of the most practical approaches we’re discussing with clients right now are 3-year stepped rate structures.
- The 3-year “Fixed” stepped rate strategy = Cash flow relief upfront (Prices are indicative only and for illustrative purposes They also don’t include any line or facility fees)For businesses feeling the pressure most acutely in the first year of a new facility, a stepped structure can provide meaningful breathing room. Using a $1M loan as an example, a stepped structure may look like:
- Year 1: 4.40%
- Year 2: 5.00%
- Year 3: 5.60%
Across the full term, the average cost is equivalent to a 5.00% rate, with total interest of $150,000 over three years – the same cost as fixing at 5.00% for the entire period.
The advantage is simple: cash flow relief in Year 1, when many businesses need it most, without increasing the total cost over the full term. In a rising rate environment, this structure can help smooth the impact of higher rates while maintaining long‑term discipline.
- The 3‑year Fixed to Variable = Certainty + growing flexibilityMany businesses consider splitting their debt eg. part fixed, part variable, to balance certainty with flexibility. But there is a more strategic way to achieve this outcome. Instead of fixing only half the debt, the stepped down structure begins by fixing the full $1M at a target rate (eg. 5.00%). Then, small portions of the loan progressively move to variable throughout the term:
- $10,000 released after 3 months
- Another $10,000 after 6 months
- Continuing quarterly
- Totalling $120,000 moved to variable by the end of Year 3.
This approach keeps more of the debt at the initial fixed rate, while gradually creating a variable component that provides greater flexibility, allows surplus repayments, assists with cash flow budgeting and gives you options as market conditions change.
If interest rates continue to rise, you’re not fully exposed to those increases because a significant portion of the debt remains fixed. Conversely, if rates start to fall, the variable portion allows you to benefit from a lower-rate environment over time, while still maintaining the certainty of the fixed component.
It’s a smarter alternative to the traditional “50/50 split”, giving clients both certainty and a growing pool of variable debt over time.
Why these strategies matter now
With rates rising again, businesses need finance structures that provide predictability, cash flow stability and room to adapt. These stepped strategies won’t suit every situation, but for some clients they can be powerful tools to manage cash flow and reduce the impact of future rate movements.
If the latest rate rise has you thinking about your cash flow, or you want to explore whether a stepped structure could support your business, I’m always happy to discuss what may be possible.
Get in touch with Steven.
