What an OCR rise does to your business loan repayments, in dollars

The Reserve Bank has lifted the OCR twice this year, and its next review lands on 28 October. If you borrow for your business, the useful question isn’t what the OCR will do. It’s what each 0.25% costs you in dollars, and which of your loans will actually move.

This guide gives you the numbers per $100k, a table by product, a worked example for a typical owner, and a short checklist. We’ve kept the maths independent of the decision itself, so it holds whether the Monetary Policy Committee hikes, holds or surprises everyone. Check the outcome on the RBNZ’s decisions page once it’s published.

How does an OCR rise reach a business loan?

The OCR is the rate the Reserve Bank sets to steer inflation. Banks set their lending rates off their own funding costs, which follow it closely. For a business, the effect shows up in three ways:

• Floating-rate bank debt (overdrafts, lines of credit, variable term loans, floating property loans) usually reprices after a rise. The bank sets the timing and the size, which won’t always match the OCR move one for one.
• Fixed-rate debt is unaffected for the fixed period. The change arrives when you refix or refinance, at whatever the market is then.
• Loans priced once at signing, which includes most equipment finance and many non-bank term loans, behave like fixed debt. Check your own agreement; some have variation clauses.

So your exposure is the total of your floating balances. A business with $400k of debt can have $50k of exposure or $400k.

What does a 0.25% or 0.50% rise cost per $100k?

Here’s the maths. For interest-only debt, the extra cost is simply the balance times the rise.

The amortising figures come from the standard repayment formula, tested across a range of starting rates. The extra dollars barely depend on the starting rate, which is why we can give a range without quoting yours. Interest-only and revolving debt cost more per $100k because the balance doesn’t fall.

Two things to take from that:

1. The shorter the loan, the smaller the dollar effect, because you’re repaying the balance quickly.
2. A revolving facility costs the same as interest-only debt, but only on what you’ve drawn. Use your average drawn balance, not your limit.

A worked example: three loans, one rise

This is an illustration, not a real client. A café-and-catering owner has:

• a $60k overdraft that averages fully drawn through the year,
• a $150k interest-only loan secured on a property, floating,
• an $80k equipment loan with the rate fixed in the contract.

That’s $525 a year at +0.25% and $1,050 a year at +0.50%. After tax at a 28% company rate, the 0.50% figure is about $756, assuming the interest is deductible. Notice the owner’s total debt is $290k, but only $210k of it moves.

Is that big? On its own, no. It matters when margins are thin or a few things stack up: another rise in December, a slow season, or a GST bill landing in the same month. Our guide to seasonal cash flow planning covers how to plan for that stack, and the GST filing periods guide covers the due dates.

If your own total looks heavier than that, you can check your options here and a person will talk through what else might fit.

Why does the same rise hit different owners so differently?

Three things decide it, and they’re worth knowing before you compare notes with another owner:

• Mix of fixed and floating. Two businesses with the same debt can have very different exposure. One owner who fixed an equipment loan two years ago feels nothing today. Another who relied on an overdraft feels it in the next statement.
• Margin. A rise of $87.50 a month is noise for a business turning over $2m with healthy margins. It’s a real line item for one running on a few percent net.
• Timing of the debt. A loan that matures within a year has a small total cost from a rise, because it’s gone soon. A long property loan carries the effect for years, which is why a 20-year balance shows a larger monthly figure in the table.

A useful habit is to express the exposure as a percentage of monthly net profit. If +0.50% would take more than about 5% of it, that’s the point at which fixing or restructuring is worth a conversation.

Which of your loans should you check first?

Run this in order, and it takes about 20 minutes:

1. List every facility with its balance, type and the rate-setting clause (floating, fixed until a date, or fixed for the term).
2. Total the floating balances. Use average drawn amounts for overdrafts and lines.
3. Multiply by 0.25% and by 0.50%, then divide by 12 for the monthly figure.
4. Put that number against your monthly free cash. If +0.50% would eat more than a few percent of it, you have a decision to make.
5. Note fixed-rate expiry dates. A fixed loan that ends in the next six months will reprice at the current market rate, not the old one.

If you want to see where a payment change would leave your month, the cash flow gap calculator is the quickest way to test it.

Should you fix, float or restructure?

There’s no universal answer, but there are some rules of thumb:

• Fix more if your margins are thin, your revenue is steady, and a surprise would hurt. You trade possible savings for certainty.
• Stay floating if you expect to repay the debt within months, or if you need to repay early without break costs.
• Restructure if the issue isn’t the rate but the shape. A longer term lowers the monthly payment on a term loan, at the price of more total interest. Don’t do it by reflex, but it’s a legitimate lever.
• Move a floating overdraft onto a business line of credit or a term loan when you’ve been living permanently at the limit. A facility that’s meant to be temporary shouldn’t be your permanent funding.

Property-backed debt has its own angle. If you hold a floating property loan and you’re comfortable with the equity, property-secured business loans can sometimes replace several smaller floating facilities with one. That only works if the numbers clear on LVR and the total cost, which you should compare in dollars, not just headline rate.

Is a secured or unsecured loan more exposed?

Not in itself. Exposure comes from whether the rate floats, not from the security. Bank floating loans, secured or not, follow bank pricing. Non-bank unsecured lenders typically set the price at approval, so a later OCR move doesn’t change your repayments mid-term. The trade-off is that those loans are usually priced on your individual circumstances and may cost more at the outset. Our secured vs unsecured guide sets out the differences.

What should you watch between now and December?

Two dates matter. The OCR decision on 28 October sets the immediate direction, and the next Monetary Policy Statement is on 9 December, which is where several bank economists expect any further move. The Reserve Bank has said inflation remains the focus and that timing of further increases is uncertain, so treat any forecast as a range, not a plan.

Practical steps for the weeks between:

• Ask your bank when it intends to pass on any change, and in writing if you can.
• Watch for notices of rate variation, which usually come with a short lead time.
• Don’t let a fixed-rate expiry sneak past you. Diarise the date three months ahead.
• Keep your bank statements tidy. Lenders reading them for a refinance look at deposits and how the account is managed, as our guide on what lenders look for in bank statements explains.

What if repayments are already tight?

If the numbers above make you uneasy, act before the next review rather than after the next statement. Talk to your current lender first, since they may offer fixing, a term extension or an interest-only period. If that doesn’t fit, a specialist can look at whether another structure suits you better, based on your turnover or the equity you hold.

Where does Loanster fit?

Rate rises are a reason to look at the shape of your borrowing, not a reason to panic. If you’d like a second pair of eyes, we can look at what you carry and what a different structure might do for your monthly cash.

Enquiring takes about 60 seconds, and there’s no credit check when you enquire, so asking won’t touch your credit file. We don’t send your details to a pile of lenders; a real person reads your situation and calls you to talk it through. Please fill in the form accurately: honest numbers let us match you with the right option first time, rather than guessing.

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