May 24, 2023 By Kristin Woodward

As part of their attempt to combat inflation, the Federal Reserve (Fed) recently announced a 0.25% rate hike, bringing the prime rate to 8.25%. This rate may be at or nearing its peak, but the Fed has left open whether it will continue to raise rates over the coming months. 

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The implications of these rate hikes hold significant importance for the 33.2 million small businesses across America, as reducing inflation can alleviate costs and help lower prices, ultimately benefiting business owners. However, the cost of borrowing money remains higher than it has been in years. 

If you need outside funding, there may still be affordable options available. Here’s how the new interest rate may impact your payments.

Variable rate loans

Variable rate loans, such as Small Business Administration (SBA) loans, generally experience an increase in monthly payments when Fed rates rise. However, SBA-backed loans, with their longer repayment terms and competitive interest rates, typically continue to offer value and serve as an attractive option for small business growth.

For instance, an SBA 7(a) loan obtained through a bank in the SmartBiz® network comes with a 10-year term, ensuring that your monthly payments are unlikely to skyrocket even with a significant rise in the Fed rate. 

Here's a glimpse of how your monthly payment for a variable-rate SBA loan might be affected:


Fed Prime Rate Increase

Monthly Payment Increase

$100,000 SBA 7(a) loan

from 8.0% to 8.25%


$200,000 SBA 7(a) loan

from 8.0% to 8.25%


$300,000 SBA 7(a) loan

from 8.0% to 8.25%


Despite the variable rates in a rising interest rate environment, SBA loans remain a favorable choice for business owners in need of funds. With the SBA guaranteeing a substantial portion of the loan, plus low rates and extended repayment terms, SBA loans typically provide an affordable pathway to achieve your business goals.

SmartBiz became the top facilitator of SBA loans because our technology and team make the application process simple and easy to navigate. After you start your application, we’ll walk you through every step and answer your questions along the way. Start an application* to see if you pre-qualify for an SBA loan from a bank in our network.

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Fixed-rate loans

Bank term loans offer fixed rates, often shielding you from the impact of rising interest rates. These loans allow small business owners to secure cash flow promptly while locking in a favorable and stable interest rate.

These loans are popular due to their borrower-friendly terms, typically requiring minimal documentation and often leading to swift funding. While they typically have slightly higher interest rates from the outset, these rates remain fixed and are unaffected by changes in the Fed's actions. Bank term loans are generally particularly beneficial for business owners who value precise budgeting, and responsible repayment can contribute to building business credit. See if you pre-qualify without impacting your credit score**.

Lines of credit

SmartBiz also facilitates a variable rate line of credit that includes 12 months of interest-only payments and no draw fees. The available credit ranges from $25,000 to $150,000. Repayment commences once you make a withdrawal from your line of credit, with interest applicable only to the amount borrowed. Once you repay the borrowed amount, the funds become immediately accessible for future use.

Although the interest rate for lines of credit is variable, they typically offer distinct advantages for business owners. These include flexible use of funds, no monthly payment obligations, and the absence of interest charges on unused funds. Learn more about custom financing solutions from SmartBiz.

Final thoughts

There is a lot of economic news out there, but it isn’t all bleak. There’s good news about the future of the American economy. A recent report on the state of small businesses in 2023 found that despite economic challenges, 76% of small business owners said yes when asked if they felt their business would survive current economic hurdles, such as inflation, rising interest rates, marketing fluctuations, and recession. As we head toward the second half of 2023, the SmartBiz team is available to help you secure the funding you need — and can afford — and, as always, we will continue to bring you important news and resources to help your small business thrive.

*Interest rates on bank term loans depend on loan term and the applicant's credit and financial profile.

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