What Fed rate moves mean for small business borrowers

The chain from the Fed to your payment

The Federal Open Market Committee sets a target range for the federal funds rate — what banks charge each other overnight. Banks' Prime rate and market benchmarks like SOFR tend to move with it. Your loan then references one of those benchmarks, adds a spread and resets on dates set in your note.

So a Fed move only reaches your payment if (1) your loan floats, (2) its benchmark moves and (3) a reset date arrives — subject to any floor or cap.

Five things to find in your loan documents

• Fixed or variable — and if variable, which benchmark
• The spread added to the benchmark
• How often the rate resets, and the next reset date
• Any floor (minimum) or cap (maximum) rate
• Whether the payment is re-amortized at reset or only the interest changes

A quick sensitivity rule

On a fully amortizing 10-year loan, each 0.25-point increase adds roughly 1.1% to the monthly payment at typical business-loan rates. On $1,000,000 at 8%, that's about $132 a month. Interest-only and short-term loans react more sharply.

What to do when rates move

Rerun your cash flow with the new payment at the next reset — not today's. If coverage gets thin, talk to your lender before the reset, not after. Refinancing to fixed can make sense, but compare prepayment penalties and closing costs against the protection you're buying.