Small business borrowing costs remain a major concern for American entrepreneurs as 2026 enters its final months. On October 28, the Federal Reserve held its benchmark federal funds rate at 3.75% to 4%. Although the Fed paused after its September increase, borrowing remains expensive for many businesses seeking loans, credit lines or financing for expansion.
Why the Federal Reserve Is Holding Rates
The Federal Reserve is balancing economic growth against persistent inflation. Its October statement described economic activity as strong and domestic spending as resilient. However, inflation remains above the central bank’s 2% target.
Two members of the Federal Open Market Committee preferred another quarter-point increase. The 10–2 vote highlights continuing disagreement over how aggressively policymakers should address inflation.
For business owners, the decision matters because the federal funds rate influences broader borrowing conditions. Banks use funding costs, credit risk and market rates when setting loan prices. As a result, a Fed pause does not automatically make business financing affordable.
Small Businesses Feel the Financing Pressure
Recent data from the National Federation of Independent Business show why owners remain cautious. Its September 2026 survey found that the average interest rate on short-maturity loans reached 8.2%, close to the historical average of 8.3%. A net 8% of owners reported paying a higher rate on their most recent loan.
Expansion plans also weakened. Just 7% of surveyed owners said September was a good time to expand. Inflation, labor availability and uncertainty about future business conditions added to their concerns.
The pressure is not identical across the economy. A September analysis by the Federal Reserve Bank of Richmond found that smaller firms were roughly twice as likely as larger firms to report financial constraints. Still, most surveyed firms did not describe financing costs as a binding limit on their plans.
How Expensive Credit Changes Business Decisions
Higher loan payments can reduce the cash available for equipment, inventory, technology and new employees. Some owners may postpone expansion, rely more heavily on internal funds or increase prices to protect margins.
A Dallas Fed survey published October 26 found that 35.3% of responding Texas business executives reported higher credit costs over the previous 12 months. Among firms reporting an increase, more than half relied more heavily on internal funds. Forty percent reduced capital spending, while just over one-quarter pulled back on hiring or raised prices.
These findings illustrate how financing conditions can affect business decisions, although the Texas survey should not be treated as a measure of every US company.
What Comes Next for Main Street?
The Fed’s next decisions will depend on incoming inflation, employment and economic activity data. A future rate reduction could ease financing pressure, but banks may not pass changes through immediately. Credit scores, collateral, business revenue and lender risk assessments will continue to influence individual loan offers.
For small businesses, the challenge is planning around uncertain financing costs while protecting cash flow. The October pause offers no guarantee of cheaper loans. Until borrowing conditions improve, owners may need to weigh expansion plans carefully and compare financing options before taking on new debt.
- Federal Reserve: October 28, 2026 FOMC statement
- NFIB: September 2026 Small Business Optimism Index
- Federal Reserve Bank of Richmond: Are Firms Financially Constrained?
- Federal Reserve: July 2026 Senior Loan Officer Opinion Survey
- Federal Reserve Bank of Kansas City: Small Business Lending Survey
- Federal Reserve Bank of Dallas: October 2026 Business Credit Survey
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