Signs emerge that rising rates could hinder small businesses

By STAN CHOE

AP Business Writer

Rising interest rates typically rank low on small-business owners’ list of problems, but some warning signs are starting to emerge.

Higher rates are already starting to bite into some businesses’ bottom lines, and the effect is likely to get stronger as the Federal Reserve continues to raise rates amid the strong economy. The Fed made its latest move last week, raising its benchmark rate by a quarter of a percentage point, and economists expect one more increase in December and at least a couple more next year.

“Most small businesses are saying, ‘Rising rates won’t affect my business,’” said Nalanda Matia, senior director in the econometrics practice of Dun & Bradstreet, which tracks data on small businesses. “But I think it’s going to affect everybody.”

She points to higher rates of credit-card delinquencies for small businesses as some of the first examples. Last month, the delinquency rate was 2.7 percent, up from 2.3 percent in the summer of 2017. Rising interest rates didn’t start the trend, which began in the middle of 2015, before the Federal Reserve began pulling rates off their record-low near zero. But rising rates have helped to accelerate the trend recently, Matia said.

Small businesses are also using more of the available credit on their cards, up to 24.5 percent from 22.8 percent a year earlier. That could put them on the line for higher interest payments as rates on cards climb. The average interest rate on all credit cards was 14.14 percent in the second quarter of 2018, its highest level in eight years.

Only 2 percent of small businesses say interest rates and finding financing are their top business problem, the same low level as a year ago, according to the National Federation of Independent Business. Twenty five percent, meanwhile, say the quality of labor is their top problem.

Regardless, rates are likely to keep heading upward, and the yield on the 10-year Treasury note is close to its highest level in more than seven years.