Small Businesses Hit Extra Hard by Rising Interest Rates: The Kiplinger Letter
It’s harder for small business owners to get bank loans and credit and they often pay higher interest rates when they borrow.

To help you understand how interest rates are impacting small businesses, and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…
Higher interest rates hurt all borrowers. But they hit small businesses extra hard. Unfortunately, for small companies, higher borrowing costs are unlikely to ease much anytime soon. So, many small firms will cut back on plans to hire, expand or invest in new capital equipment.
Just how much costlier is credit these days? In 2019, the prime rate, the benchmark rate for loans to small borrowers, was 5.5%. Now, it’s up to 8.5%. Small firms are paying 9.1% on average, per the National Federation of Independent Business. And even that may be an understatement.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Owners of small businesses often depend on credit cards or personal loans, which carry rates far higher than corporate bank loans usually do. Interest costs are nearing 7% of revenues for small-business borrowers. In 2021, they were 6%. If rates hold steady, the figure will hit 8% by 2030.
Credit has gotten notably tighter, too. Just 13% of small-business loan applications to large banks are getting approved these days, roughly half the rate back in 2019. Smaller banks and credit unions are now approving 20% of small business applications, vs. 40%-50% in 2019.
Large companies face tougher standards, too. But many of them can borrow directly by issuing bonds or commercial paper, albeit at the highest yields in many years. For many small businesses, there’s no choice but to cut back — fewer hires, delayed purchases of needed equipment, holding off on moving to a bigger space, etc.
Business, overall, is OK, but many small companies can’t finance the investments to grow. (If you sell to small firms, you’re already seeing this belt-tightening. Unfortunately, there’s little hope of it ending anytime soon. If anything, expect more retrenchment.)
One upside of higher rates: Some small firms can earn more on their cash if they carry significant cash balances. The days of 0% on savings accounts are over. There are also some alternate credit sources small firms may be able to tap: Loans and loan guarantees from Uncle Sam, in particular.
Various programs run by the Small Business Administration aim to help small companies access credit. For example, the SBA 7(a) loan program provides loans that can be used for working capital or to buy a business at the prime rate plus a margin the borrower and lender agree to. SBA 504 loans can be used to purchase owner-occupied commercial properties.
The Department of Agriculture provides loan guarantees to small businesses in rural areas through its Business and Industry Loan Guarantees Program. A wide range of loans are eligible, with guarantees of up to 80% of the amount borrowed for many purposes.
Even some private grants are available to small companies. For instance, Verizon offers $10,000 awards plus consulting via its Small Business Digital Ready program.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.
-
Living Abroad as an American? Don’t Miss These Tax Breaks in 2025
International Tax U.S. expats can reduce their tax burden by taking advantage of a handful of tax credits and deductions.
-
The Hidden Cost That's Ruining Vacation Home Dreams
Are rising HOA fees derailing your second home dreams? Annual dues, insurance premiums, and taxes are rising, boosting total ownership costs. Here's what you can do.
-
Will State Laws Hurt AI’s Future?
The Kiplinger Letter Republicans in Congress are considering a moratorium on state AI laws. But it’s likely a growing patchwork of state AI regulations will be here for a while.
-
The New AI Agents Will Tackle Your To-Do List
The Kiplinger Letter Autonomous AI agents “see” your computer screen, then complete a task, from buying a concert ticket to organizing email. This opens up a world of possibilities.
-
AI’s Medical Revolution
The Kiplinger Letter Medicine is a field ripe for finding both exciting and practical uses for AI. The tech is already being used by doctors and researchers.
-
The Economic Impact of the US-China Trade War
The Letter The US-China trade war will impact US consumers and business. The decoupling process could be messy.
-
AI Heads to Washington
The Kiplinger Letter There’s big opportunity for AI tools that analyze MRIs and other medical images. But also big challenges that clinicians and companies will have to overcome.
-
The AI Doctor Coming to Read Your Test Results
The Kiplinger Letter There’s big opportunity for AI tools that analyze CAT scans, MRIs and other medical images. But there are also big challenges that human clinicians and tech companies will have to overcome.
-
The New Space Age Takes Off
The Kiplinger Letter From fast broadband to SOS texting, space has never been more embedded in peoples’ lives. The future is even more exciting for rockets, satellites and emerging space tech.
-
Rising AI Demand Stokes Undersea Investments
The Kiplinger Letter As demand soars for AI, there’s a need to transport huge amounts of data across oceans. Tech giants have big plans for new submarine cables, including the longest ever.