What the Fed's hike to a 7% prime rate actually means for a contractor with a floating-rate line

The Federal Reserve raised its benchmark rate by a quarter point on September 16, to a range of 3.75% to 4%, on a 12-0 vote. The bank prime loan rate, the index behind most business lines of credit, variable SBA loans and business credit cards, followed the next day: the Fed's own H.15 release shows it at 6.75% through September 16 and 7.00% on September 17 and 18.

We covered which kinds of business debt reprice last week. This piece puts dollars on it, for three different owners.

The contractor: $31.25 a month, per $150,000

Take a general contractor carrying $150,000 on a line priced at prime plus 2%. Interest-only math, which is how most lines bill:

The formula is balance x 0.25% / 12. On $150,000 that is $31.25 a month, $375 a year. That is real money, but it is not what decides whether a contractor makes it through the winter. The $13,500 a year the balance already costs is. If the line is funding materials on a job that pays in 60 days, the question worth asking is whether the job's margin covers roughly $1,125 a month of carry, not whether the hike does.

The CheckThisBiz directory lists 141,913 independent construction and contracting firms, plus 40,729 HVAC companies, 34,694 roofers and 27,975 plumbers. Any of them that float working capital on a line can use the table above with their own balance.

The restaurant: $8 a month on a card, and why that is misleading

Suppose a restaurant carries $40,000 on a business card with a variable rate of 22%. The hike takes it to 22.25%, adding about $8.33 a month. It barely registers. But the balance itself costs about $733 a month in interest. For card debt, the hike is noise and the balance is the story.

The trucking company: $34 a month on a variable SBA-style loan

A carrier with $250,000 on a 10-year variable loan at prime plus 2.75% paid about $3,234.94 a month at 9.50%, figured on a full 10-year schedule. At 9.75% the payment is about $3,269.26, or $34.32 more. Another hike, to 10%, would make it about $3,303.77. Variable term loans often reset quarterly rather than immediately, so check your note for when the new rate kicks in.

The number behind the number: no relief penciled in for 2027

The part worth planning around is in the Fed's projections table. The median official sees the federal funds rate at 4.1% at the end of 2026, which implies one more quarter-point hike this year, up from 3.8% in the June projections. For the end of 2027 the median is also 4.1%. It only drifts down to 3.9% in 2028.

In plain terms: the median Fed official does not expect to give back any of this in 2027. An owner who is waiting for rates to come back down before refinancing or expanding is, by the Fed's own forecast, waiting at least a year. The same officials see inflation at 3.7% this year, which is why they are hiking into an economy their statement calls "expanding at a solid pace."

Fixed-rate borrowing is a separate market. New equipment loans and commercial mortgages are priced off longer Treasury yields, and the 10-year was at 5.01% on Tuesday morning according to our live market data. Existing fixed loans do not change at all.

What to actually do

1. Do the formula on your own balance. Balance x 0.0025 / 12 is what each quarter-point hike adds to a variable line. For most owners it is smaller than feared.
2. Budget at prime of 7.25%, not 7%. The next Fed meetings are October 27-28 and December 8-9, and the median projection points to one more hike. Between now and the October meeting, the September consumer price report due October 14 is the data that matters most.
3. Pay down the most expensive variable balance first, which is almost always the card, not the line.
4. Do not rush to refinance fixed debt into floating. Nothing in the Fed's forecast makes floating cheaper within a year.
5. If the line is running near its limit, the problem is the balance, not the rate. Our explainer on working capital versus a line of credit covers the difference.

Sources: FOMC statement; Summary of Economic Projections; Federal Reserve H.15; FOMC calendar; business counts from CheckThisBiz. Loan balances, spreads and card rates are illustrative examples. This is general information, not financial advice.