High Interest Rates: Why Borrowing Has Never Been Tougher for Business Owners

We're In a Very Persistent & Tough Funding Environment

In today’s economy, business owners are finding themselves stuck between a rock and a hard place when it comes to borrowing money. The cost of capital has surged to levels we haven’t seen in over a decade, and it’s changing the way entrepreneurs think about growth, survival, and long-term planning.

At Axis Business Advisors, we speak with owners every day who are frustrated by this climate. The story is often the same: “We want to expand, hire, or just cover working capital — but the loan terms don’t make sense anymore.”

So why is borrowing so expensive right now, and how does it impact your ability to grow or even survive? Let’s break it down.

The Federal Reserve’s Role in Rising Rates

To understand today’s lending environment, we have to look at the Federal Reserve. In an effort to control inflation, the Fed has raised benchmark interest rates multiple times in recent years. While this cools inflation, it also ripples directly into small business lending.

• Bank loans are tied to the prime rate, which has jumped dramatically.

• Credit card APRs, lines of credit, and even SBA loan rates have climbed.

• The cost of borrowing has essentially doubled in many cases compared to just a few years ago.

For a business, this means what used to be a manageable monthly payment is now an intimidating financial burden.

The Real Impact: Dollars and Cents

Let’s look at an example.

• A $1,000,000 loan at 5% interest (pre-inflation climate) costs about $5,416 per month in interest.

• That same loan at 10% interest (today’s climate) costs about $8,333 per month in interest.

That’s an additional $35,000 per year in interest payments — money that could have gone to payroll, marketing, or expansion. For many owners, that added expense turns growth projects into non-starters.

How Tariffs and Inflation Make This Worse

High rates don’t exist in isolation. They are colliding with other economic challenges:

• Tariffs are increasing the cost of imported goods, raw materials, and equipment.

• Inflation is driving up the price of everything from rent to wages.

• Supply chain volatility means businesses often pay premiums to secure inventory on time.

When costs are already rising, layering expensive debt on top becomes a near-impossible equation. Lenders, meanwhile, are aware of these conditions and often scrutinize businesses harder before approving loans.

The Psychological Effect on Business Owners

It’s not just about the math — it’s about confidence.

When owners see borrowing costs skyrocket, they second-guess growth. They may delay expansion, avoid hiring, or shelve new product launches. While this feels safe, it also creates long-term risks: falling behind competitors who do find creative ways to secure capital.

High rates can lead to a “wait and see” mentality, but waiting often costs more than moving forward with the right financing strategy.

What Banks Don’t Tell You

Banks often stick to a single narrative: if your debt coverage ratio doesn’t meet their standard, you’re out of luck. But here’s what they won’t say:

• There are alternative financing options beyond traditional bank loans.

• Revenue-based financing ties repayment to your sales — helping during slow months.

• Private lenders and structured deals can fill the gap when banks say no.

• In many cases, seller financing during acquisitions offsets the need for high-interest loans.

At Axis, we’ve seen that the best capital strategies combine multiple tools rather than relying on one expensive loan.

How Business Owners Can Navigate This Climate

Here are practical steps you can take:

1. Know your numbers — cash flow, margins, and debt coverage. Lenders will drill down on these.

2. Explore creative financing — don’t assume banks are the only answer.

3. Time your debt — sometimes a shorter-term, higher-cost option makes sense if it bridges you into stronger cash flow.

4. Lean on expertise — brokers like Axis have relationships with lenders who understand the nuances of today’s climate.

The Axis Advantage

At Axis Business Advisors, we don’t just find loans — we craft financing strategies. In a high-rate environment, our role is to:

• Identify funding sources outside the obvious bank channels.

• Structure deals to minimize risk to owners.

• Leverage our network of private lenders, equity partners, and creative solutions.

• Help you decide if now is the right time to borrow — or if waiting truly serves you better.

The economy will always cycle. Rates will eventually adjust. But businesses that adapt creatively now will be best positioned to thrive later.

Final Thoughts

High interest rates have changed the borrowing game, but they don’t have to stop you from accessing the capital you need. With the right strategy — and the right partners — you can still grow, acquire, or stabilize your business even when banks and traditional loans feel out of reach.

At Axis Business Advisors, our mission is simple: help business owners unlock capital and opportunity in any climate.

📞 Ready to explore your financing options? Let’s talk. 310-564-6878