Home›Bonds & Rates›Economy›Small US rate hike is unlikely to change most business…

Small US rate hike is unlikely to change most business decisions

A 25-basis-point move could lift the prime rate toward 7%, but a $500,000 five-year equipment loan would rise only from $120,942 to $121,658 annually, Guardian Economics reports.

Reported · Written up by our desk · Economy

With the appointment of a new Federal Reserve chair, attention is turning to whether US interest rates could rise in coming months, but Guardian Economics argues that a modest increase would not meaningfully alter decisions for most established businesses.

The article says a 25-basis-point hike would likely raise the prime rate to around 7%, yet many small businesses do not borrow at prime. Instead, they typically pay about 1% to 2% over prime, which limits the pass through to their financing costs.

Guardian Economics also provides an example for a $500,000 bank equipment loan with a five-year term, estimating annual payments would increase from $120,942 to $121,658 if rates rise by 25 basis points.

It adds that even in a scenario where the prime rate reaches 8.5%, the annual payment would only move to $123,099. The piece contrasts this with startup funding conditions, noting that venture capital funding for tech and AI related companies surged 51% last year to $320 billion, while banks may still remain interested in other small business borrowers.

More like this

Sources