The Federal Reserve’s decision to hold interest rates steady offers stability — but not necessarily certainty — for small businesses. “Capital remains one of the most powerful tools for small business growth,” says Chris Ward, Head of Small Business Banking at TD Bank U.S. “But in today’s rate environment, business owners are being especially thoughtful about how and when they use it. The key is making sure every financing decision is tied to a clear growth strategy and measurable business outcome.”
To explore what that means in practice, I asked four leaders in small business finance what the Fed’s latest decision means for entrepreneurs, how borrowing patterns are changing, and what business owners should consider before taking on new debt.
Meet the Panel
Ben Johnston:
COO, Kapitus
Chris Ward
Head of Small Business Banking, TD BANK U.S.
David Gilbert
Founder and CEO, FairSquare
Mark Valentino
Head of Business Banking, Citizens
What Does a Steady Fed Mean for Small Businesses?
Rieva Lesonsky: At its last meeting, the Fed held interest rates steady. What does that really mean for a typical small business owner over the next six to 12 months?
David Gilbert: For most small business owners, a steady Fed rate won’t dramatically change their plans over the next six to 12 months. Small businesses typically aren’t managing large debt structures where a quarter-point move has a major impact. What matters more is whether they see demand in their businesses and opportunities to grow. Interest rates are one input, but confidence, cash flow, and access to the right financing are usually much more important drivers of decision-making.
Chris Ward: For small businesses, working capital is key to operating, investing, and growing their businesses, and when they do that, it also positively impacts our local economies. And with borrowing costs elevated compared to recent years, small business owners are taking a more measured approach to growth and investment decisions, which can have a broader impact on local economic growth and job creation.
Mark Valentino: Preparedness matters most. A steady rate provides consistency and is a positive for many businesses, but there’s a difference between owners who can act on an opportunity and those who can’t. Too often, it comes down to whether businesses already have capital access lined up.
Ben Johnston: While the Fed held rates steady in July, we expect inflation to force at least one 25 bps increase before year-end. This is unlikely to have a dramatic impact on small businesses, which have become accustomed to the current rate environment, but it provides no relief for a challenging small business economy already struggling with tariffs, higher energy prices and poor consumer sentiment.
Are Businesses Still Delaying Growth?
Lesonsky: Are business owners still delaying expansion because of borrowing costs, or are they adjusting to today’s interest-rate environment?
Ward: We’re seeing a combination of both. Many business owners have adjusted to operating in a higher-rate environment by focusing on efficiency, cash flow management, and strategic investments. At the same time, elevated borrowing costs continue to influence growth decisions. A lower-rate environment would likely increase access to capital and give business owners greater confidence to invest in hiring, inventory, equipment, and technology. Until then, many are prioritizing investments with the clearest and quickest return.
Gilbert: In our experience, most business owners aren’t delaying expansion simply because of borrowing costs. They’re making decisions based on the opportunities they see in front of them. Factors such as local economic conditions, consumer demand, tariffs, political uncertainty, and regional market trends tend to have a much bigger impact on expansion plans than interest rates alone. When business owners are confident in the opportunity, they generally find ways to pursue growth.
Johnston: At this point, small businesses have become accustomed to higher interest rates. However, higher rates mean a higher economic bar for starting new projects. As a result, the growth in the small business economy is slower than it would have been under lower-rate scenarios.
Valentino: Take advantage of calm moments to build your edge. Steady conditions like this are exactly when owners should invest. It’s what sets them apart. The business that moves now is the one that pulls ahead when things get harder again.
How Borrowing Is Changing
Lesonsky: What changes are you seeing in how small businesses are borrowing today compared to a year ago?
Valentino: The timing of the conversation is shifting. Previously, most calls for capital started when an owner already needed cash. Now, more are reaching out well before that point to build the relationship and get a line established long before they’d ever need to draw on it.
Gilbert: We’re continuing to see strong demand for capital, which tells us business owners are still investing in growth despite the current rate environment. One notable change is that we’re seeing larger, more established businesses seek financing solutions from providers they may not have considered before. As banks have tightened underwriting standards and some alternative lenders have pulled back, more businesses are looking for flexible sources of capital. That’s expanded the range of companies entering our market.
Johnston: At Kapitus, we are seeing strong growth in both application and funding volume, indicating that the small business economy is growing despite headwinds. This growth is also likely driven by consolidation in the banking sector, which has resulted in fewer community lenders supplying small businesses with capital.
Ward: Based on recent NFIB reporting, small business owners remain cautious as elevated borrowing costs and ongoing economic uncertainty continue to influence decision-making. As a result, many are taking a more measured approach to financing and investment. At the same time, optimism around future growth remains resilient, with many owners actively evaluating opportunities to expand, improve operations, and invest in their businesses when the timing and economics align.
Should You Borrow Now?
Lesonsky: What should business owners consider before taking on debt in today’s market?
Gilbert: The first question every business owner should ask is: What is the purpose of this capital? Too often, people focus solely on the interest rate. The bigger consideration is whether the financing helps achieve a specific business objective and generates a return on investment. The structure of the financing should match the purpose. The right capital, with the right terms and flexibility, is often more important than chasing the lowest possible rate.
Ward: Small business owners should start with a clear understanding of how the financing will support their goals. Before taking on debt, it’s important to evaluate the expected return on investment, the timeline for generating that return, and how the payments fit within overall cash flow. Whether the funding is being used to expand operations, purchase equipment, or invest in technology, having a thoughtful plan can help ensure the debt supports long-term growth and financial stability.
Valentino: I’d want an owner to look at how the debt fits into their broader cash flow picture. The test is whether the business could still handle that obligation if revenue dipped for a quarter or two. Debt that doesn’t account for that flexibility can turn a smart decision into a strain.
Johnston: Before taking on debt, small business owners should carefully project the expected return on the investment relative to the cost of capital required to finance the opportunity. Keeping a close eye on customer demand and cash flow is critical.
The Biggest Financing Mistake Owners Make
Lesonsky: What’s the one mistake you see small business owners making when it comes to financing decisions right now?
Gilbert: The most common mistake we see is using the wrong type of financing for the situation. A business owner might finance a short-term need with a long-term loan or finance an asset with a repayment period that doesn’t align with its useful life. When capital and purpose are mismatched, businesses can find themselves carrying unnecessary financial burdens. The most successful business owners focus on matching the financing structure to the specific opportunity they’re pursuing.
Ward: One of the biggest mistakes is taking on debt without a clearly defined strategy for how that capital will be deployed and repaid. Growth opportunities can be exciting, but it’s important to understand the expected return, revenue impact, and payback period before moving forward. The most successful business owners approach borrowing with a disciplined plan that aligns financing decisions with their long-term business objectives.
Valentino: The mistake isn’t taking on debt; it’s not having the credit in place to say yes quickly when a real opportunity presents itself. Look past your next few payments and seriously dig into your cash flow. Could you still cover XYZ if revenue slowed down for a quarter or two? The math may be working today, but that doesn’t automatically indicate long-term financial sustainability.
Johnston: Generally speaking, small business owners tend to be thoughtful and conservative when borrowing money to fund growth. However, it is important for small businesses to have a strong operating plan, and multiple financing options should that plan hit a bump in the road. In times of uncertainty, optionality is key.
Rieva Lesonsky is the founder of Small Business Currents, a content company focusing on small businesses and entrepreneurship. You can find her on Twitter @Rieva, Bluesky @Rieva.bsky.social, and LinkedIn. Or email her at Rieva@SmallBusinessCurrents.com.
Photo courtesy Getty Images for Unsplash+
