The Federal Reserve’s recent rate hike is adding to the strain on U.S. small businesses. Payments and financial technology companies say higher borrowing costs will affect firms that rely on credit to fund day-to-day operations and could also delay equipment purchases, technology upgrades and expansion plans. If rates rise again during 2026, the effects could spread further through inventories, supply chains and employment.
Santhosh Srinivasan, Nium’s vice president of treasury for the United States, said the pressure is unlikely to be short-lived. Small businesses may face elevated costs for an extended period, with the drag on operations becoming more pronounced the longer rates remain high.
Small businesses are already facing several cost pressures
Ben Johnson, chief operating officer at Kapitus, said small businesses were already dealing with high inflation, trade friction with Canada, slower employment growth and higher oil and gas prices linked to the war in Iran before the latest rate increase. The most recent hike, together with market expectations for another increase by the end of 2026, will raise financing costs further after several years of price increases and supply-chain uncertainty.
In isolation, the latest rate move may have a smaller direct effect on small businesses than fuel and tariff costs. Johnson said, however, that businesses would feel more significant operating pressure if interest rates continued to rise into 2027.
Data from the U.S. Congress Joint Economic Committee show that businesses with fewer than 10 employees cut 292,000 jobs in 2025. The decline was roughly 4.5 times the reduction recorded in 2020. By April 2026, these businesses had posted 13 consecutive months of job losses. Over the same period, revenue at construction companies with fewer than 10 employees fell 10%, while revenue at similarly sized leisure and hospitality businesses dropped 15.2%.
Inventory finance and expansion plans face the most pressure
Businesses that borrow to cover routine operating expenses are particularly sensitive to interest-rate changes. Johnson said manufacturers, wholesalers and retailers often use products such as factoring to purchase inventory and raw materials. Farmers may borrow ahead of the selling season to buy seeds, fertilizer and equipment, while contractors may need financing to launch projects, hire workers and purchase materials. Their funding costs all rise as interest rates increase.
Companies planning to buy equipment, acquire property or purchase a competitor may also revisit their project schedules. Srinivasan said higher capital costs could force businesses to preserve cash for supply-chain liquidity, delaying or redirecting funds that had been earmarked for technology investment.
Johnson described this as an opportunity cost. Businesses may not be unable to invest altogether, but they may be less willing to commit capital and begin projects when demand remains uncertain. For payments-focused fintech companies, demand for merchant financing may continue, but both borrowers and lending platforms must contend with a higher cost of funds.
Nium tests stablecoin-based just-in-time financing
Nium is offering a stablecoin-based just-in-time financing model that links funding arrangements to a company’s real-time inventory needs. Under the approach, suppliers are paid when inventory actually needs to be replenished, with the aim of reducing additional costs associated with holding stock and delays in the supply chain.
Srinivasan said Nium does not intend to fund every requirement at once. The company plans to cover about 50% initially with fiat currency, then monitor and arrange the remaining funding based on the payment channels available to each customer. The objective is to align financing more closely with actual inventory requirements.
Johnson advised small businesses to monitor operating margins closely and avoid rushing into new projects before confirming that market demand can justify the time and capital involved. Companies also need to assess consumers’ ability to pay, as household spending is under pressure in an inflationary environment. Some may need to adjust their product mix, offer lower-priced or clearer-value options, and arrange financing in advance so they can respond to weaker demand or pursue opportunities with more predictable returns.
Block and PayPal also face higher funding costs
Nium and Kapitus are not the only companies providing financing to small businesses. PayPal, Block and American Express also operate in the market and have recently invested in artificial intelligence to support small-business services. Those AI initiatives, however, were not introduced as direct responses to tariffs or higher interest rates.
American Express launched several business-banking products this month. As a significant lender to small businesses, the company has consistently said its small-business strategy is not based excessively on short-term economic conditions.
Eric Grover, head of Intrepid Ventures, said overall short-term demand for business credit could decline as borrowing costs rise. If merchants come under operating pressure and traditional bank loans become more expensive, some demand could shift toward Block and PayPal because the platforms can observe merchants’ day-to-day performance more directly and recover payments through card transactions.
Grover also said Block and PayPal face higher funding costs themselves in a high-rate environment. That limits how far the platforms can expand their financing businesses even if demand from merchants remains evident.