Small-business loan costs little changed by quarter-point rate rise

Bankruptcy filings jump 67% as credit stress warnings persist

Gene Marks, a small-business consultant and Guardian columnist, said in a July 19 column that a quarter-point increase in the Federal Reserve’s benchmark interest rate would not meaningfully change borrowing costs for most established small businesses and would not alter their investment or hiring decisions. His analysis comes as markets anticipate the appointment of a new Fed chair and the possibility of rate increases in the coming months.

“A 25-basis-point increase doesn’t meaningfully change borrowing costs for most established businesses. In fact, it changes nothing at all,” Marks wrote. He calculated that a business borrowing $500,000 from a bank for a five-year equipment loan would see annual payments rise from $120,942 to $121,658 under a quarter-point increase. Even if the bank’s prime rate jumped to 8.5%, the annual payment would increase to $123,099. “This is not enough of a difference to discourage my clients from moving forward with a financing project,” he said.

Marks said startups are unlikely to be squeezed by a rate increase either. Venture capital funding to tech companies and AI-focused startups skyrocketed 51% last year to $320 billion, he noted. For small businesses that are not venture capital candidates, Marks said banks remain interested in lending, citing Small Business Administration credit availability and guaranteed bank loans at levels significantly higher than in prior years.

Small-business loan approvals held steady at 52% last year, up from 46% in 2021, according to the Federal Reserve. Financing firm Biz2Credit reported that debt repayment volume increased 24% and debt coverage among small and medium-sized businesses improved from 0.57 times in the first quarter of 2025 to 1.40 times in the first quarter of 2026, which Marks said suggests that stronger firms “have demonstrated a greater capacity to manage their monthly obligations.”

Consumer spending — the main factor behind small-business growth — rose sharply last month at a rate significantly above inflation, according to Marks. Delinquency rates and bank charge-offs for delinquent credit card balances have both been falling each quarter since 2024, he said. Consumer credit remained on “solid footing” in May, according to a widely watched credit scoring agency report, with data suggesting consumers have “largely adapted to a prolonged higher-rate environment despite rising household expenses and the return of student loan payments.”

Jamie Dimon, CEO of JPMorgan Chase, recently shared concerns that the next credit cycle “will hit likely harder than expected,” pointing to $5.1 trillion in leveraged finance — including private credit, high-yield bonds and syndicated loans — as the key stress point, according to Marks. The American Bankruptcy Institute reported that small-business bankruptcy filings jumped 67% in the past quarter over a year earlier, citing “persistent inflation, elevated interest rates and geopolitical instability” and warning that the more “immediate constraint is access to credit” as some lenders grow more cautious.

Bank of America CEO Brian Moynihan said his bank “remains watchful of evolving risks” but has seen “healthy client activity, including solid consumer spending and stable asset quality, indicating a resilient American economy,” according to Marks. Wells Fargo CEO Charles Scharf reported that “while 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.”

Marks acknowledged that too large a rate increase could trigger a credit crunch but said the average small business would decide whether to borrow based on whether demand justifies the investment — not on a quarter-point change in borrowing costs.