Cash Flow and Inflation – Lets Review

business cash flow for small businesses

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As a small business owner, you understand the importance of cash flow to keep your business afloat. 

Inflation, however, can have a significant impact on generating positive cash flow. Inflation leads to increased costs of living, higher wages, and rising interest rates, which can impact business negatively. In this article, we will discuss the impact of inflation on business cash flow and the different cash flow lending solutions available to assist cash flow.

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The Impact of Inflation on Cash Flow

Inflation refers to the increase in the cost of living over time. As the cost of living increases, so do the costs of running a business, including wages, rent, supplies, energy and other inputs. This, in turn, reduces the cash available to business owners, making daily operations more challenging.

Inflation has a direct impact on interest rates.  The Reserve Bank of Australia (RBA) Governor Philip Lowe has made clear statements about using interest rates to put downward pressure on spending and in an effort to lower inflation to a more sustainable level.  Unfortunately, as interest rates rise so do lending costs.  This generally means it’s harder for a business to borrow during periods of higher inflation and that, when approved, typically fewer funds are available compared to when interest rates are low. 

Because of the impact of inflation, business purchasing power during times of higher inflation is lower.  We see this reflected in the current economic conditions – businesses that were seeking business cash flow funding to invest in their business in better times are now more likely to be seeking cash flow financing.

Lending Solutions for Cash Flow

With many business owners seeking support for their operations due to the current economic conditions, it’s important to understand the different cash flow lending solutions available.  Which solution is right for you will be determined by your own individual needs and include important factors like your industry type, time in business, asset position and future prospects.  

Here are some of the cash flow lending solutions available to Australian business owners.


Overdrafts are a well-known working capital solution to address business cash flow.  An overdraft is a genuine line of credit allowing business owners to access capital for any business need up to a preapproved limit.  In addition to the traditional overdrafts available from banks that typically need to be secured, unsecured overdrafts are also available.  Applications for limits up to $500,000 usually don’t require financials which makes them a fast no-doc loan or low-doc loan solution that can be set up within 24-48 hours.

Invoice Financing

Invoice financing, also known as invoice factoring or debtor finance, is a lending solution that brings forward revenue recognition for businesses – think of invoice finance as a way to get paid on your invoices the day you write them. Using your invoices as security, business owners can access up to 85% of their invoice values, up to a pre preapproved limit.  Funds can be used to pay wages, cash flow funding your work in progress or any other legitimate business cost.

small business owners and inflation

Unsecured Loans

Unsecured loans are a term loan solution that doesn’t require property security like a traditional bank loan. These loans are ideal for business owners who require funds to support longer-term strategies and growth opportunities.  Loan amounts range from $10,000 to $1,000,000 and lending terms can be very short or extend out to 5 years.  The amount of lenders offering unsecured loans combined with the flexibility of their features means there’s a solution for virtually all business types.

Raising Capital Against Assets With Equipment Finance

Whether it be vehicles, trailers, equipment or machinery business owners can also raise much needed capital against their assets.  Because asset finance loans are secured this typically means they have a lower interest rate.  There are also lenders who are more sympathetic to business owners with bad credit because the loans are secured by vehicles, equipment or machinery.  

Whilst the assessment for unsecured business loans looks at historical revenue to determine eligibility, equipment finance providers will take into account future business cash flow forecasts which makes them an option if you’ve experienced a recent downturn period and revenue isn’t as strong as normal.

Private Lending

Private lending is a flexible lending solution that enables business owners to borrow against the equity they hold in property.  Typically short-term loans, some private lenders offer longer terms as a way to differentiate themselves from other lender’s product offerings.

Assessments for private loans typically consist of a property valuation to ensure the security property is sufficient to cover the loan and having an acceptable exit strategy to pay out the loan at the end of the loan term.  

Given the unregulated nature of private loans it’s important to understand your lender has a track record of funding loans of the size you’re seeking, accepting the security type you intend to use as collateral and having a fair approach to fees, disputes and collections activity if things go wrong.

There are very significant differences between the private lenders seeking to provide loans or contract borrowers to fees.  We strongly recommend clients get expert advice when seeking a private loan.  Click here to talk to an expert about a private loan

Cash Flow Financing Can Support Businesses Impacted by Inflation

The impact of inflation can negatively impact business cash flow, making it challenging to manage the day-to-day operations of a business. Business owners can, however, utilise different lending solutions, including overdrafts, invoice financing, unsecured loans, raising capital against assets, and private lending solutions as a support to managing cash flow effectively during periods of inflation.

If you need assistance with cash flow financing for your business you can reach out to the team here.

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