\n<\/p>\n
W<\/span>ith the appointment of a new Federal Reserve chair, the latest concern is that interest rates will go up in the next few months. That decision will depend on many factors, including inflation, jobs and the economy\u2019s overall growth. But when that happens, watch out! The media will go nuts and the president will go ballistic. Everyone treats every Fed meeting as an economic earthquake. But for most small businesses, it isn\u2019t.<\/p>\n A 25-basis-point increase doesn\u2019t meaningfully change borrowing costs for most established businesses. In fact, it changes nothing at all.<\/p>\n But say the Fed increases the federal funds rate by that amount. The result would likely be an increase in the prime rate to 7%. Most of my clients \u2013 small businesses \u2013 don\u2019t pay the \u201cprime\u201d rate because, well \u2026 they\u2019re small businesses and are generally more risky investments.<\/p>\n So they often pay 1% or 2% over prime. Will this interest rate increase change their investment, borrowing and hiring decisions? No, it won\u2019t. A business borrowing $500,000 from a bank for a five-year equipment loan, for example, would see their annual payments go up from $120,942 to $121,658.<\/p>\n Even if the bank\u2019s prime rate jumped to 8.5%, their annual payment would only rise to $123,099. This is not enough of a difference to discourage my clients from moving forward with a financing project.<\/p>\n The reality is that capital markets \u2013 even for small businesses \u2013 are pretty stable right now.<\/p>\n Some may say that startups could be squeezed. But, like always, that depends on what kind of startup we\u2019re talking about. If you\u2019re in tech \u2013 particularly AI \u2013 money is falling from the sky. Venture capital funding, particularly to tech companies and anyone that mentions AI, skyrocketed 51% last year to a whopping $320bn. If \u2013 like most small businesses \u2013 you\u2019re not a VC candidate, then you\u2019ll find that banks are still interested in you too. The Small Business Administration has increased credit availability for many small businesses \u2013 particularly manufacturers \u2013 and is guaranteeing a significantly higher level of bank loans than in years past.<\/p>\n Small business loan approvals held firm at around 52% last year (up from 46% in 2021), according to the Federal Reserve. Financing firm Biz2Credit reported recently that debt repayment volume increased 24% and debt coverage improved from 0.57x in Q1 2025 to 1.40x in Q1 2026, \u201csuggesting that stronger [small and medium-sized businesses] have demonstrated a greater capacity to manage their monthly obligations\u201d.<\/p>\n What about consumers? Their spending is the main factor behind small business growth, and if they\u2019re maxed out on credit that would reverberate across the economy.<\/p>\n Still, so far, so good. Consumer spending rose sharply last month to a rate significantly above inflation. Delinquency rates and bank charge-offs for delinquent balances on credit cards have both been falling each quarter since 2024. Consumer credit remained on \u201csolid footing\u201d in May, according to a widely watched credit scoring agency report, with the data suggesting that consumers have \u201clargely adapted to a prolonged higher-rate environment despite rising household expenses and the return of student loan payments\u201d.<\/p>\n This doesn\u2019t mean that both businesses and consumers aren\u2019t without their financing challenges. There are 34m small businesses and more than 360 million people that live here, so there\u2019s bound to be a not insignificant percentage of people and companies that struggle to raise funds or pay their bills.<\/p>\n Jamie Dimon, CEO of JPMorgan Chase, the country\u2019s largest bank, recently shared his concerns that the next credit cycle (a recurring economic response for when borrowers struggle to repay, defaults and losses rise, lenders tighten standards sharply, and credit becomes scarce) will hit likely harder than expected, pointing to $5.1tn in leveraged finance (private credit, high-yield bonds, syndicated loans) as the key stress point.<\/p>\n skip past newsletter promotionFree newsletter | Every weekday<\/p>\n Sign up to Business Today<\/span><\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n after newsletter promotion<\/p>\n Too much of an interest rate increase could certainly trigger that. But your average plumbing company that borrows $500,000 for equipment isn\u2019t going to be much concerned about whether to buy that machine based on a quarter-point rate increase. They decide based on whether they believe demand will justify the investment.<\/p>\n Another cause for concern is the rise in US bankruptcies. The American Bankruptcy Institute recently reported that small business bankruptcy filings \u201cjumped\u201d 67% this past quarter over last year thanks to \u201cpersistent inflation, elevated interest rates and geopolitical instability\u201d and warned that the more \u201cimmediate constraint is access to credit\u201d as some lenders are becoming more cautious in extending financing due the uncertainties that continue to challenge the US and global economies.<\/p>\n However, and like Dimon, both Brian Moynhian and Charles Scharf \u2013 who run Bank of America and Wells Fargo, respectively \u2013 are not yet raising red flags. In its latest earnings release, Moynihan said his bank \u201cremains watchful of evolving risks\u201d but so far has seen \u201chealthy client activity, including solid consumer spending and stable asset quality, indicating a resilient American economy\u201d.<\/p>\n Scharf reported similar findings, saying that \u201cwhile markets have been volatile, we still see continued resiliency in the underlying economy and the financial health of the consumers and businesses we serve remains strong, though the impact of higher oil prices will likely take some time to materialize\u201d.<\/p>\n So will the Fed increase interest rates? Maybe. But I wouldn\u2019t be too concerned. For many established small businesses, a modest increase is unlikely to alter major investment or hiring decisions.<\/p>\n","protected":false},"excerpt":{"rendered":" With the appointment of a new Federal Reserve chair, the latest concern is that interest rates will go up in the next few months. That decision will depend on many factors, including inflation, jobs and the economy\u2019s overall growth. But when that happens, watch out! The media will go nuts and the president will go<\/p>\n","protected":false},"author":1,"featured_media":51268,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[99,270,1406,519,1407,7594,2434,313,3982],"class_list":{"0":"post-51267","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-businesses","9":"tag-change","10":"tag-gene","11":"tag-interest","12":"tag-marks","13":"tag-modest","14":"tag-rate","15":"tag-rise","16":"tag-wont"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/51267","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=51267"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/51267\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/51268"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=51267"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=51267"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=51267"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}