Buying a franchise when interest rates are rising: a 2026 stress test

• Cash rate: 4.35% since 6 May 2026, after three 0.25 percentage point rises announced on 3 February, 17 March and 5 May 2026.
• The RBA held the rate on 16 June and 11 August 2026, and doesn't expect inflation to return to around the middle of its target range until late 2027.
• Next decision: the Monetary Policy Board meets on 28 and 29 September 2026.
• Small businesses pay well above the cash rate: new small-business loans averaged 7.44% in July 2026, and 6.89% where secured by residential property.
• For a benchmark, APRA keeps its home-loan serviceability buffer at 3 percentage points (confirmed 28 May 2026). There's no equivalent rule for franchise loans.
• Stress-test sales and costs as well as the interest rate.

The cash rate is the Reserve Bank's policy rate, and lenders set business loan rates above it. Here is the recent sequence.

1. 2025: three cuts took the cash rate to 4.10% in February, 3.85% in May and 3.60% in August, where it stayed for the rest of the year.
2. 3 February 2026: raised by 0.25 percentage points to 3.85%.
3. 17 March 2026: raised by 0.25 percentage points to 4.10%.
4. 5 May 2026: raised by 0.25 percentage points to 4.35%.
5. 16 June 2026: held at 4.35%.
6. 11 August 2026: held at 4.35%. The Board said higher fuel prices were being passed through to other prices, and that it would raise rates further if upside risks to inflation materialise.
7. 28 and 29 September, 2 and 3 November, and 7 and 8 December 2026: the remaining scheduled meetings this year.

This guide reflects decisions to 11 August 2026. Check rba.gov.au for the latest decision before you sign a loan.

The RBA publishes average lending rates from lenders' data every month. They are averages across all small-business loans, so your own quote may be higher or lower.

• New small-business loans averaged 7.44% in July 2026, up from 6.55% in December 2025.
• New small-business loans secured by residential property averaged 6.89% in July 2026.
• New variable-rate small-business loans averaged 7.07%, and new fixed-rate loans 8.11%, in July 2026.
• All outstanding small-business loans averaged 7.46% in July 2026.
• For comparison, new owner-occupier home loans with principal and interest repayments averaged 6.16% in July 2026.
• No official series tracks franchise loans specifically. Your rate depends on the lender, the security, the loan type and your application.

1. Get written quotes showing the rate, fees, term, security and whether the rate is fixed or variable.
2. Calculate the repayment at the quoted rate, then at 1, 2 and 3 percentage points higher, using the franchise loan calculator.
3. Put the highest of those repayments into your cash-flow forecast.
4. Cut forecast sales by 10% and then 20%. In August 2026 the RBA noted consumer spending growth was slowing gradually, as expected.
5. Lift the costs that matter in your category, such as fuel, stock and wages. The RBA also noted that some firms facing cost pressures were raising their prices.
6. Include your household debts. If your home loan is also variable, a rate rise hits both at once.
7. Check that what's left still pays you and keeps a working capital buffer. If it doesn't, borrow less, contribute more or choose a lower-cost system.

Illustrative only. These figures use the standard amortisation formula with monthly principal and interest repayments over 7 years, no fees, and the stated rates as assumptions.

• $150,000 at an assumed 7.5%: about $2,301 a month.
• $150,000 at an assumed 8.5%: about $2,375 a month, about $75 more.
• $150,000 at an assumed 9.5%: about $2,452 a month, about $151 more.
• $150,000 at an assumed 10.5%: about $2,529 a month, about $228 more, or about $2,740 a year.
• $250,000 at an assumed 7.5% versus 10.5%: about $3,835 versus $4,215 a month, a gap of about $381.
• The 2026 rises in practice: $150,000 at December 2025's 6.55% average costs about $2,231 a month, against about $2,296 at July 2026's 7.44%, about $65 more.
• Household view: a $500,000, 25-year home loan at 6.16% costs about $3,271 a month, and about $3,585 at 7.16%, about $315 more.

On these numbers, the direct cost of a rate rise on a franchise loan is real but manageable. A 10% drop in sales can cost far more: in our illustrative business plan example, it cut the owner's income by $31,800 a year. That is where your buffer needs to be.

A fixed rate stays the same for the fixed period. A variable rate can go up or down, and the lender decides when. Some loans let you split the balance between the two.

• Fixed: repayments are certain for the fixed period, which makes a first-year cash-flow forecast easier to rely on.
• Fixed: you don't benefit if rates fall, and there may be break costs if you repay early or refinance. Moneysmart suggests asking lenders about break costs directly.
• Variable: repayments move with the lender's rate, so your forecast needs a buffer for rises.
• Variable: check whether extra repayments and early payout are allowed without fees, which matters if you plan to sell or refinance.
• Split: part fixed and part variable, trading some certainty for some flexibility.
• Either way, compare the total cost over the term, including upfront and ongoing fees, not just the headline rate, as business.gov.au recommends.

There's no official buffer for franchise loans. These reference points are worth discussing with your accountant.

• APRA's serviceability buffer for home loans is 3 percentage points above the loan rate, confirmed on 28 May 2026. Using the same margin in your own franchise stress test is a conservative check.
• Keep working capital separate from the loan, so a slow month doesn't push you onto an overdraft. business.gov.au says overdrafts shouldn't be relied on for capital purchases or long-term financing.
• Hold personal savings for household costs while the business ramps up, because it may not pay you for months.
• Ask the franchisor and current franchisees how trading changed during the 2026 rate rises, and whether any fee relief was offered.
• Avoid stacking debts. A franchise loan, a vehicle loan and a bigger home loan can each look affordable on their own.
• If the numbers only work at today's rate, the deal is too tight.

• I've checked the latest RBA decision on rba.gov.au.
• I have written quotes from at least two lenders, including fees and security.
• I've tested repayments at 1, 2 and 3 percentage points above the quoted rate.
• My cash-flow forecast uses the stressed repayment and a 10% to 20% sales shortfall.
• I've included household debts in the stress test.
• I understand the break costs and early payout rules if I choose a fixed rate.
• I hold a working capital buffer outside the loan.
• My accountant has reviewed the numbers.