Borrowing Dear: Small Firms Lean on Costly Credit as Rates and Tariffs Bite
Fed data show more small businesses turning to merchant cash advances, just as a reported rate hike pushes prime to 7%. Census has published September formation data, but the figures could not be confirmed today.
Key Trends
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Update: the Oct 14 brief said September business formation data was not yet indexed. Census published its September 2026 Business Formation Statistics on October 14, but the release could not be opened today, so September application counts are not reported here. The next release is scheduled for November 12.
Review
“Census published its September 2026 Business Formation Statistics on October 14… next release November 12” — the brief admits the release could not be opened, so both dates are unconfirmed and carry no unverified flag — add unverified flag or confirm on census.gov.
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Small firms are shifting toward expensive credit. The Fed’s Small Business Credit Survey found the share of firms applying for merchant cash advances rose to 12% in 2025 from 9% in 2024, and over 40% of firms called tariff-related costs a financial challenge. This fits the Oct 14 finding that owners are unwilling to commit capital.
Review
“MCA applications rose to 12% in 2025 from 9% in 2024; over 40% cited tariff costs” — numeric claim from a single CNBC page relaying the Fed survey, with no unverified flag and no link to the Fed’s own SBCS report — add unverified flag or cite the primary survey.
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The New York Fed’s research points the same way on tariffs. Its Liberty Street Economics analysis of tariff effects on U.S. small businesses is the primary-source companion to the survey data above, and it frames the cost pressure as a margin problem for firms that cannot easily pass prices on to customers.
Unverified
The Liberty Street page was not opened directly; its framing is inferred from the search summary and the title.
Notable Businesses & Launches
No significant developments today.
Funding & Investment
No significant developments today. Searches surfaced several SMB-serving fintech raises, but none could be dated to this week, so none are reported.
Regulatory & Economic Context
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A secondary site reports the Fed raised rates on September 16, its first hike since 2023, and that major banks lifted prime from 6.75% to 7%. Higher prime feeds directly into variable-rate SBA 7(a) loans and lines of credit.
Review
“Fed raised rates on September 16… prime from 6.75% to 7%” — a second-source search corroborates the September 16 hike (first since 2023, target range 3.75%–4.00%), but the 7% prime figure is only implied by the prime = upper bound + 3 convention, not directly sourced — keep the unverified flag and cite a primary Fed/bank source for prime.
Unverified
Single secondary source citing Reuters; the Reuters story and the Fed’s own statement could not be retrieved. Confirm before relying on it.
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The SBA’s access rules have tightened and its limits have risen. House Small Business Democrats say the combined 7(a) and 504 cap rose to $10 million effective July 4. CBS News reports the SBA has shut out non-U.S. citizens from its main lending program. This continues the SBA underwriting story from Oct 12; no new SBA notice appeared since.
Unverified
The cap figure comes from a partisan committee document, and the CBS page’s date could not be confirmed. Check SBA’s own notices.
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Senate Democrats have raised concerns that merchant cash advances carry effective rates up to 94% a year and sit outside SBA’s regulatory remit. The claim is a political advocacy position, not a regulatory finding.
Takeaway
Takeaway
When bank credit tightens through higher rates and narrower SBA eligibility, demand for capital does not vanish, it migrates to the least regulated lenders, so the real small-business credit story this autumn may be told by merchant cash advance volumes rather than loan approvals.