Last week’s Reserve Bank of Australia decision to lift interest rates for the first time in over a decade was huge news. And in the commercial money market, rate increases have been almost 10x those of the RBA increase.

With an election in just over a week, the topic of rising interest rates is showing no signs of quietening down. Chances are that your commercial-solar customers may be anxious about rising interest rates and will bring it up.

Helping them to understand what’s happening, why and how it will affect them may mean the difference between closing a sale and having it fall flat.

Here’s what you need to know.

1. Understand the basics

No one is happy about it, but bear in mind that this rise is coming off the back of 18 consecutive interest-rate cuts (to a record low 0.10%).

Interest rates need to adjust to control some of the highest inflation seen in many years.

While there are lots of things that have contributed to the timing of this rise, two of the obvious causes are an almost 10% rise in the cost of fuel and the global energy shortage (particularly fossil-fuel energy).

2. Remind them about “cash-flow positive” benefits

In the vast majority of cases, projects will remain cash-flow positive – even under the revised rates (especially when factoring in forecast energy price rises).

Cash flow plays a huge role in the survival of a business. One of the benefits of using a payment plan is that businesses avoid tying up capital while still taking advantage of reduced energy bills.

So while monthly payments may increase slightly, the benefits of payment plans remain.

Back in October we wrote about China’s energy crisis and supply chain constraints resulting in rising prices for the local solar industry. Now, with inflation and cost of living increasing, banks are starting to raise interest rates.  

Your customers may ask about rising interest rates and their impact on commercial solar projects. Here are some quick explanations.

What’s happening with interest rates?

While interest rates plummeted to help economies rebuild from the impact of COVID, in many cases they’ve now been ‘over-corrected’ resulting in inflation. As a result, interest rates need adjusting and many financial institutions are expecting rates to rise, to control inflation and slow growth.

The Reserve Bank of NZ (RBNZ) has increased interest rates twice already in 2021 but the Reserve Bank of Australia (RBA) is not predicted to increase interest rates in the short term.

What impact does this have on businesses that want to purchase equipment?

For most financial institutions that borrow funds from both local and international markets, rates are already increasing. At Smart Ease, we anticipate that banks will raise their fixed interest rates by around 0.5% in 2022, meaning the cost of funding equipment (like solar panels) will rise.

How will Smart Ease payment plans be affected?

Just as the cost of solar panels has gone up, the price of commercial funding will go up. But in the vast majority of cases, projects that were deemed to be cash-flow positive will remain so – even under the revised rates.  

Example: On a $30,000 payment plan, the monthly repayments on your customer’s payment plan will increase $8/month (over both 5 and 7 year term periods).

The bottom line

Inflation is inevitable. We are seeing this every day in the cost of petrol, for example, and consumer goods. 

So for businesses, while monthly payments may increase slightly, the advantages of reductions in energy bills and the consistency of regular payments (much like regular car repayments) remain.

At the end of the day, the environmental and commercial benefits of new technologies will continue to outweigh any potential obstacles. The Smart Ease team is here to help you – and your customers – achieve those. 

Want to know more about Smart Ease payment plans and rising interests rates? Let’s talk.