With a new Federal Reserve chair appointed, concerns are growing that interest rates may rise in the coming months.
The decision will hinge on inflation, employment, and overall economic growth.
When it happens, expect media frenzy and political backlash, but for most small businesses, it's not a seismic event.
A 25-basis-point increase does not meaningfully change borrowing costs for established businesses. If the Fed raises the federal funds rate, the prime rate could climb to 7%.
However, small businesses typically pay 1% to 2% above prime due to higher risk. Will this affect their investment, borrowing, or hiring?
Unlikely.
Consider a business borrowing $500,000 for a five-year equipment loan. Annual payments would rise from $120,942 to $121,658 with a quarter-point increase.
Even if the prime rate jumped to 8.5%, the annual payment would only reach $123,099.
Such a small difference won't deter most owners from pursuing financing projects.
Capital markets for small businesses remain stable. Startups may face some pressure, but it depends on the sector.
Tech companies, especially those in AI, are awash in venture capital—funding surged 51% last year to $320 billion.
For non-VC candidates, banks are still lending.
The Small Business Administration has increased credit availability, especially for manufacturers, and is guaranteeing more bank loans than in past years.
Small business loan approvals held at around 52% last year, up from 46% in 2021, according to the Federal Reserve.
Biz2Credit reported that debt repayment volume increased 24% and debt coverage improved from 0.57x in Q1 2025 to 1.40x in Q1 2026, indicating stronger SMEs can manage monthly obligations.
Consumer spending, a key driver for small business growth, remains robust. It rose sharply last month, outpacing inflation.
Delinquency rates and bank charge-offs on credit cards have been falling quarterly since 2024.
A major credit scoring agency noted that consumer credit was on "solid footing" in May, with consumers adapting to higher rates despite rising expenses and student loan payments.
Challenges persist. With 34 million small businesses and over 360 million people, some will struggle.
JPMorgan Chase CEO Jamie Dimon warned that the next credit cycle could hit harder than expected, pointing to $5.1 trillion in leveraged finance as a stress point.
A significant rate increase could trigger that, but the average plumbing company borrowing $500,000 for equipment won't be swayed by a quarter-point hike—they'll decide based on demand.
Small business bankruptcy filings jumped 67% this past quarter, according to the American Bankruptcy Institute, citing inflation, elevated rates, and geopolitical instability.
Some lenders are becoming cautious. However, CEOs of Bank of America and Wells Fargo are not raising alarms.
Bank of America reported "healthy client activity, including solid consumer spending and stable asset quality."
Wells Fargo noted "continued resiliency in the underlying economy" and strong financial health among consumers and businesses.
So, will the Fed raise rates? Possibly.
But for established small businesses, a modest increase is unlikely to change major investment or hiring decisions.
