On September 16, the Federal Reserve raised its rate a quarter point, to 3.75% to 4%. It is the first hike since 2023 (Fed statement). Prime moves with it, so most small business credit lines and variable-rate loans went up about a quarter point within days.
A quarter point sounds like nothing. On a $200,000 line, it is about $500 a year. I have been through a lot of rate cycles in 44 years, and nobody ever went under over $500.
What gets people is that nobody tells you. No call, no letter. The rate just changes on the next statement. And most of the Fed's own committee expects at least one more hike before year end. The next meeting is October 27 and 28.
Here is the part nobody writes. Contractors and nonprofits tend to run on a credit line that quietly became permanent. You draw on it for payroll while you wait on a pay app or a grant reimbursement, and the balance never really gets back to zero.
That is not a line of credit anymore. It is a loan with a variable rate and no end date. Every quarter point hits it every month, for as long as the balance sits there.
Add the equipment note, the credit cards, and any SBA loan priced off prime, and a few quarter points start to matter.
Write down three things for each: the balance, whether the rate floats, and what it is tied to. Then look at how many days in the last year your line sat at zero. If the answer is "never," that balance is debt, and you should plan for it like debt.
Want a second set of eyes on that page? Call me at 951-528-1428 or just reply to this.