A 25-basis-point increase in US interest rates will not meaningfully change borrowing costs for most established businesses, according to business commentator Gene Marks. In fact, it changes nothing at all.
Minimal Impact on Borrowing Costs
If the Federal Reserve raises the federal funds rate by a quarter point, the prime rate would likely rise to 7%. However, most small businesses pay 1% or 2% above prime due to higher risk. For a business borrowing $500,000 over five years for equipment, annual payments would increase from $120,942 to $121,658. Even if the prime rate jumped to 8.5%, the annual payment would only rise to $123,099. This is not enough to discourage financing projects.
Stable Capital Markets
Capital markets remain stable for small businesses. Venture capital funding surged 51% last year to $320bn, particularly for tech and AI startups. The Small Business Administration has increased credit availability, especially for manufacturers, guaranteeing higher bank loan levels. Small business loan approvals held firm 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 capacity to manage obligations.
Consumer Spending Resilient
Consumer spending rose sharply last month, above inflation. Delinquency rates and bank charge-offs on credit cards have fallen each quarter since 2024. A credit scoring agency report noted that consumer credit remained on "solid footing" in May, with consumers adapting to a prolonged higher-rate environment despite rising expenses and student loan payments.
Challenges Remain
Despite overall stability, some businesses and consumers face financing challenges. Jamie Dimon, CEO of JPMorgan Chase, warned that the next credit cycle could hit harder than expected, citing $5.1tn in leveraged finance as a key stress point. Small business bankruptcy filings jumped 67% this past quarter over last year, according to the American Bankruptcy Institute, due to persistent inflation, elevated interest rates, and geopolitical instability.
Bank Leaders Cautious but Not Alarmed
Brian Moynihan of Bank of America said the bank "remains watchful of evolving risks" but has seen "healthy client activity, including solid consumer spending and stable asset quality." Charles Scharf of Wells Fargo reported "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."
For many established small businesses, a modest interest rate increase is unlikely to alter major investment or hiring decisions.
