Fed Rate Hike Raises Cost of Capital for Black and Minority-Owned Businesses

WASHINGTON - EntSun -- The Federal Reserve raised the federal funds target range from 3.50%–3.75% to 3.75%–4.00%, its first rate increase since 2023. Following the announcement, major U.S. banks increased their prime lending rate from 6.75% to 7.00%.

Creative Investment Research (CIR) sees he rate hike as necessary to both fight inflation and to reinforce the Fed's political independence. The firm estimates that a business with a $500,000 floating-rate loan that reprices by 25 basis points would incur approximately $1,250 in additional annual interest expense. On $1 million in outstanding variable-rate borrowing, the direct increase would be approximately $2,500 per year.

But CIR warns of the indirect impact. Many small and minority-owned businesses rely on credit to finance payroll, inventory, equipment and contract performance before customers pay their invoices. Businesses unable to obtain sufficient conventional bank financing may be forced to use higher-cost online or alternative lenders.

More on EntSun News

• Fashion Sourcing: How Global Apparel Sourcing Is Changing the Way Clothing Brands Manufacture
• Luther Relives Brings an Outstanding Tribute to Luther Vandross to the Weinberg Center this October
• Building a Diversified Healthcare Platform as Exosome Science, Telehealth, Diagnostics & Strategic Acquisitions Converge: NexTel Medical (OTCID: MAJI)
• Most Indiana Plane Crashes Happen Away from the State's Major Airports
• L2 Aviation Welcomes Jason Marshall as Vice President of Sales and Business Development

The firm highlighted the following changes:

Borrowing Benchmark - Before Hike - After Hike

Federal Funds Target   3.50%–3.75%   3.75%–4.00%

Bank Prime Rate   6.75%   7.00%

Illustrative Bank Line of Credit — Prime + 3%   9.75%   10.00%

SBA 7(a), loans above $350,000 — maximum variable rate   9.75%   10.00%

SBA 7(a), $50,001–$250,000 — maximum variable rate   12.75%   13.00%

SBA 7(a), $50,000 or less — maximum variable rate   13.25%   13.50%

Actual borrowing rates vary.

Cunningham said the impact is particularly important for minority suppliers performing corporate and government contracts.

"A minority supplier may have to finance payroll, inventory and subcontractors for 30, 60 or 90 days before getting paid," Cunningham said. "Large companies can often finance that gap internally or borrow at institutional rates. A small minority supplier may have to finance the same economic activity at a double-digit rate. That difference directly affects profitability and the ability to compete for the next contract. We think this calls for the creation and utilization of special small contractor working capital financing programs."

More on EntSun News

• Mom Era, Still That Girl: Family Art Tees 25% Off
• Movie Meltdown Joins Weirding Way Media
• Fashion vs. Fascism - Because Democracy Should Always Be In Style
• Lee Gunn IV Shares Lessons From 40 Years in the Courtroom on PodNumbra Podcast
• KayeDinero Takes "Appalachia" Above the Blue Ridge With New Aerial Music Visual

Higher interest rates can also affect business expansion by increasing the required return on new investments. Equipment purchases, hiring, new locations, acquisitions and inventory expansion become more difficult to justify as financing costs rise.

Creative Investment Research said policymakers, banks, corporations and supplier-diversity organizations should therefore monitor not just headline interest rates, but also credit approval rates, lending spreads, collateral requirements, working-capital availability and the use of high-cost alternative financing among small and minority-owned businesses.

"The cost of capital is one of the most important—and least visible—competitive disadvantages confronting minority businesses," Cunningham said.

The full analysis is available at https://www.impactinvesting.online/2026/09/fed-rate-hike-raises-cost-of-capital.html