The Federal Reserve raised interest rates by 25 basis points on September 16, increasing the federal funds target range from 3.50%–3.75% to 3.75%–4.00%. The vote was unanimous.
For Black and minority-owned businesses the consequences deserve closer examination. Following the Fed announcement, major U.S. banks increased their prime lending rate from 6.75% to 7.00%. Prime is particularly important to small businesses because many commercial lines of credit, working-capital facilities and SBA loans are either directly or indirectly tied to it. The result is straightforward: the cost of business capital just went up.
Estimated Black/Minority Business Borrowing Costs Before and After the Hike
The table below illustrates the immediate effect on small-business borrowing. These are not race-specific quoted rates—but lenders are known to have a separate unpublished “Black business rate.” The table below illustrates rates using common prime-linked financing products.
For a minority-owned business carrying a $500,000 floating-rate balance, a 25-basis-point increase translates into approximately $1,250 in additional annual interest expense, assuming the full balance remains outstanding. A $1 million balance means roughly $2,500 more per year.
Why the Impact Is Larger for Black-Owned Firms
The economic effect of a rate increase depends not only on how much rates rise, but also on who needs credit, why they need it and which credit markets they can access.
The Federal Reserve's 2026 Small Business Credit Survey provides an important clue. Among Black-owned businesses that applied for financing, 76% said they needed financing to meet operating expenses, compared with 53% of white-owned applicants. Fifty-seven percent of Black applicants sought financing to expand their businesses, and 50% wanted credit available for future needs.
A business borrowing to buy another building can postpone the investment, but a business borrowing to make payroll, purchase inventory, pay suppliers or cover the gap between delivering a contract and receiving payment has less flexibility. In this case, working capital is not optional capital.
The Real Cost May Be Much Higher Than 25 Basis Points
The Fed's quarter-point increase does not mean every minority business will simply pay exactly 0.25 percentage point more.
The Federal Reserve's 2026 employer-firm survey found that the percentage of small-business applicants seeking financing from online lenders increased from 17% in 2020 to 29% in 2025. Among firms that actually borrowed from online lenders, 60% reported that borrowing costs turned out to be higher than they expected. High interest rates and unfavorable repayment terms were among the most common complaints.
We know that firms shut out of conventional bank financing migrate toward more expensive forms of credit. Previous Federal Reserve race-specific credit data have consistently shown this problem. In the 2024 survey, for example, only 35% of Black-owned applicants were fully approved for the loan, line of credit or cash advance they requested, compared with 56% of white-owned applicants. Thirty-nine percent of Black applicants were denied outright.
The rate hike therefore creates two separate risks:
Price risk: existing variable-rate debt becomes more expensive.
Access risk: tighter underwriting may cause some firms to receive less financing, forcing them toward higher-cost sources of capital.
For Black businesses, the second effect may ultimately be more important than the first.
Supplier Diversity Firms Face a Working-Capital Problem
The rate increase could also have implications for corporate and government supplier-diversity programs.
Consider a minority supplier that performs a $500,000 contract but must finance payroll, equipment, inventory and subcontractors for 30, 60 or 90 days before receiving payment. Higher interest rates increase the cost of carrying that receivable.
Large corporations can frequently fund working capital internally or obtain institutional financing at relatively narrow spreads. Smaller minority suppliers may have to finance essentially the same commercial transaction at double-digit rates. That creates a hidden cost-of-capital disadvantage. It can make an otherwise profitable contract less profitable, reduce the firm's ability to bid on the next contract and limit how quickly the company can scale.
Rate Hikes Also Raise the Hurdle Rate for Growth
The consequences extend beyond debt. When risk-free interest rates rise, investors generally increase required returns for private equity, venture capital and other forms of growth capital.
That means some investments will not occur. Equipment will not be purchased. Locations will not open. Hiring will be delayed. Inventory will be reduced. Acquisition plans will be reconsidered. These are the channels through which monetary policy ultimately affects the real economy.
A 25-Basis-Point Increase Is Not a 25-Basis-Point Problem
The September rate hike should therefore not be evaluated simply by looking at the change in the federal funds rate. For Black and minority-owned firms, the more relevant questions are:
How much capital can they obtain? Under what conditions? From what type of lender? And how much additional revenue must the business generate simply to cover the higher cost of money?
The Federal Reserve is attempting to bring inflation under control. But monetary tightening works in large part by increasing the price of money and discouraging borrowing and investment. For businesses that already face higher barriers to affordable capital, that mechanism can be especially painful.
The federal funds rate is now 3.75%–4.00%. Prime is now 7.00%. SBA variable-rate ceilings can reach 13.50%.
For America's Black and minority-owned businesses, the cost of capital has moved higher again. And if this becomes the beginning of a new tightening cycle rather than a one-time adjustment, the cumulative effect on minority-business investment, hiring and growth could become considerably more significant.