At the second Federal Reserve meeting in 2025, interest rates on business loans and credit lines could remain the same as they were in the near future, as the current prime rates remain between 4.25-4.5%.
The Fed cut the rate three times in 2024, promoting more economic activity and reducing borrowing costs to stimulate the job market, but stubbornly sustained inflation and strong job markets motivated the Fed to keep them up.
President Donald Trump has shown he hopes to lower future charges, and the tensions between the executive branch and the Fed’s independence, as well as the broader economic impact of potential tariffs, mass expulsions and other factors will continue to influence the way the Fed chooses to move to 2025.
How the Federal Reserve affects business loans
The Fed’s interest rate sets the base rate that lenders provide to businesses for loans. As Federal Reserve rates rise or fall, so do business loans and credit line APRs and factor rates.
This is one way the Federal Reserve affects economic activity. With low interest rates, businesses can borrow more, expand more, and hire more people. Higher charges, on the other hand, help limit the supply of businesses and consumers. This is one way that helps governments control inflation.
Borrowing costs
Interest rates on a business loan or business line play a major role in how much a company pays for its borrowing. Even if the loan does not have an explicit APR or interest rate, the factor, flat, weekly or monthly interest rates are all based on interest rates set by the Federal Reserve.
“Even for loans that are not pinned at the prime rate, generally lower interest rates lead to lower borrowing costs over time,” says McBride.
In July 2024, the average APR for SBA loans was 13.50% at the bottom. Therefore, a 15-year SBA loan of $300,000 comes with a monthly payment of $3,894.96 and a total of $401,092.01, with an interest rate of $401,092.01 paid in addition to the principal of the loan.
A reduction in APR of just 0.25% will make a significant difference in the interest paid. The same $300,000 at a rate of 13.25% requires a monthly payment of $3,845.21 and a total interest rate of $392,137.67.
Fixed variable rate business loans
Federal interest rates set interest rates for both fixed and fluctuating business loans, but the impact on borrowers can be felt in a variety of ways.
For example, new borrowers on fixed-rate business loans will feel the impact of fees on the APR provided, factors, monthly fees and weekly fees. However, existing fixed-rate borrowers will maintain the interest rate they agreed to when they undertake the loan and continue to pay the same amount.
Variable business loans have interest rates with market rates. This means that borrowers can see monthly or weekly payment changes at federal rates.
Refinance and integration
Borrowers who decide to refinance or consolidate their business loans will see changes in their loan terms in line with federal fees.
Refinancing or consolidation of loans in the event of a lower federal interest rate can result in borrowers taking advantage of lower market rates and reducing the amount they pay over time.
Business loan approval
Lower federal interest rates can increase the likelihood of business loan approval, as borrowers have lower borrowing costs.
Low interest rates will lower monthly or weekly payments, and provide lower risk to borrowers and lenders on loans than high interest rates.
Also, the lower interest rates allow businesses to borrow more. With less monthly or weekly payments, companies are dedicated to interest, allowing them to undertake bigger loans while maintaining the same payments.
How interest rates affect small businesses
The Federal Reserve uses interest rates to accelerate or slow economic activity. By increasing borrowing costs and making loans more expensive, the Fed can help to curb growth, reduce money supply and reduce inflation. Meanwhile, lower rates stimulate economic activity and encourage businesses to expand and hire more workers.
“Assuming the economy continues to grow consistently, when interest rates drop, it can be cheaper for businesses to get loans, which could serve as a catalyst for starting a business, undertaking expansion or increasing production.
This can have a significant impact on small businesses both in terms of non-finance costs and customer and revenue growth.
Consumer trust and purchasing power
Lower federal interest rates can help stimulate economic activity. This will convert into more cash to get burned for customers, and perhaps more business can burn.
“The lower interest rates make it easier for businesses to undertake expansion or increase production, so they might do the same for their customers in that business,” says McBride. “If the contractors on sale are getting more projects, the wholesaler of the materials will benefit.”
Reducing borrowing costs can also reduce payments for credit cards, students and people with housing debt.
However, the Federal Reserve must also balance inflation. Lower borrowing costs mean greater money supply for borrowers and consumers. This could lead to higher prices that erode increased inflation and higher prices that erode customer purchasing power.
employment
More businesses, and more loans, mean that businesses hire more, increase employment rates, and provide wages that consumers can use to purchase goods and services.
One in five workers say the economic situation has deteriorated since the Fed began raising interest rates in 2022, which has cooled the hot employment market over the past few years, giving employers more leverage in negotiating wages and managing labor costs.
Will the Federal Reserve be lower in 2025?
The January rate hold was predicted by economists and investors, particularly as inflation stubbornly outperformed the Fed’s 2% benchmark, and the job market has grown considerably throughout December.
The Federal Reserve is cautious about cutting interest rates, with fewer cuts shown in 2025 as the economy stabilizes. Powell has shown that at least this year cuts could be made, but when they are implemented, the economic outlook is not yet considered uncertainty.
There are several factors that can affect these metrics and motivate the Fed to cut interest rates. High energy costs, supply chain issues and inflation caused by labor shortages could lead the Fed to hold down interest rate declines tightly or raise fees to curb rampant high prices.
A stable labor market could motivate the Fed to stabilize fees to maintain employment at a uniform pace and prevent wages from rising quickly.
What impact will President Trump have on the Federal Reserve?
President Trump’s claim that “interest rates will fall soon” with his promise to lower inflation and energy prices has fueled speculation about future clashes between the Federal Reserve and the White House.
Trump is critical of the Federal Reserve and has issued a statement about both the campaign’s trajectory and tenure, saying the Fed should lower fees in accordance with executive orders. However, Powell argues that the Fed will maintain independence and make decisions based on its own benchmarks of economic health to set interest rates.
Powell also indicated in January that if the labour market or the economy demands it, the Fed will “easing policy accordingly.”
Trump’s massive executive order and campaign promises will have an impact on the economy moving forward. The massive, undocumented deportation of immigrants, which began after taking office in January, is projected to have a broad impact on job markets and demand for products such as housing.
Tariffs on imported goods are projected to increase inflation as importers pass taxes to American consumers. Trump’s promised tax cuts for both businesses and individuals could also increase money supply, possibly stimulating an economy that is balanced with tariffs.
While some economists warn that Trump’s promised tariffs and tax cuts will speed up inflation and government debt, others predict that Trump’s promise to bring manufacturing back to the US will strengthen the economy and the US dollar and encourage the Fed to fall once again.
When will the next Federal Reserve Council be?
The next Federal Reserve meeting will be held on April 30th and May 1st, 2025.
How to manage business loan payments at high prices
The Federal Reserve is lower than in July 2023, but borrowers are paying higher interest rates in 2022 than before the Fed began to raise interest rates.
To manage high-profit loans, businesses waiting for the next cut can create several steps to make their loans more affordable.
- Shop for other lenders. Evaluating your shopping among lenders and finding the best possible APR or factor rate for your business loan will help you save on payments and borrowing and closing costs.
- Reduce operational costs. This includes letting go of personnel, reducing production costs, and moving to cheaper locations.
- Refinance or consolidation. You may be able to reduce your monthly payments or get better interest rates by refinancing or consolidating your business debts.
- Talk to your lender. If you are struggling to make a payment, you can set up an alternative payment plan by talking to your lender before you miss your payment.
- Consider alternative financing options. Capital funding from investors, personal funding, or subsidy applications may allow them to raise capital for small and medium-sized businesses.
Conclusion
The business loan rate will likely remain in place as the Federal Reserve steadily holds its current rate. Economic factors such as inflation and the job market will affect enforcement decisions when the Fed plans to move along with the rate, and from the Trump administration. With less rate reduction slates in 2025, as inflation continues to adjust, companies need to prepare to find a good rate they can live with.
