So, what does this mean for small business owners—especially those with SBA term loans or planning to apply for one? Let’s break it down.

Why the Fed Is Considering Cutting Rates

The Fed has been walking a tightrope between cooling inflation and supporting growth. Key factors driving the September decision include:

• Labor Market Weakness: Recent data shows slower job creation, rising unemployment claims, and a higher jobless rate. This signals that businesses are cutting back, raising concerns of a broader slowdown.
• Inflation Still Above Target: In August, inflation rose slightly to 3.1%, still above the Fed’s 2% target. Cutting too quickly could reignite inflationary pressures.
• Fed’s Balancing Act: Chair Powell emphasized in July that rate decisions depend on labor market health. Current trends point toward a cautious rate reduction of about 0.25%.

How a Rate Cut Impacts SBA Loans

Most SBA 7(a) loans are tied to the Prime Rate plus a margin set by the lender. When Prime shifts, new loans and many existing variable-rate SBA loans adjust accordingly.

Here’s what a rate cut means for borrowers:

• Lower Monthly Payments: A $500,000 SBA loan at Prime + 2% would currently carry an interest rate of 9.5%. A 0.25% cut would lower the rate to 9.25%, reducing monthly payments by roughly $100–$120, depending on the term length.
• Improved Affordability for New Borrowers: Lower rates make SBA loans more attractive to businesses planning expansions, equipment purchases, or working capital financing.
• Long-Term Savings: Even a modest cut compounds over a 10-year or 25-year SBA loan term, saving borrowers thousands over time.

Why Relief May Be Slow

Even with a September rate cut, businesses should manage expectations:

Gradual Cuts Ahead: The Fed is unlikely to reduce rates aggressively while inflation remains above 3%. Cuts will likely come in small, measured steps.

Persistent High Costs: Compared to the historically low rates of the 2010s, borrowing will remain relatively expensive for the foreseeable future.

Uncertainty Lingers: If inflation accelerates again, the Fed could pause or reverse cuts, keeping SBA rates elevated.

What Small Business Owners Should Do Now

Whether you already have an SBA loan or are considering one, here are proactive steps to take:

Review Your Loan Terms – Check whether your SBA loan is fixed or variable. Variable-rate loans adjust with Prime; fixed loans will not.

• Evaluate Refinancing Options – If you locked in at higher margins, future cuts may open opportunities to refinance at better terms.
• Plan Capital Needs – If you anticipate expansion or refinancing, monitor Fed actions closely. Even small cuts can improve affordability.
• Strengthen Financials – Lenders will remain cautious. Strong cash flow and clean financial statements will position you best to benefit from lower-cost SBA financing.

The Fed’s anticipated September 2025 rate cut would be the first in nearly a year and could mark the beginning of a shift toward lower borrowing costs. For small businesses with SBA term loans, even a modest reduction in rates can ease monthly payments and improve loan affordability.

But patience will be required—rate relief is likely to be gradual, not dramatic. Small business owners should use this time to evaluate loan structures, prepare for refinancing opportunities, and plan strategically for the next phase of the economic cycle.

Looking for SBA financing options for your Small Business? As rates are expected to fall, this is a great time to look into SBA term loan options. Apply here to view available offers for your Small Business.