Julio Ortiz would like to grow his small Sacramento-based chain of eateries, which serve Mexican fruit cups, smoothies, shakes and juice. But given today's relatively high cost of borrowing, he's holding off.
"The game plan is to expand. And if the rates were lower, I would definitely seek out credit to continue to expand," Ortiz said. "It's too costly right now."
Ortiz has been operating
Since interest rates started climbing two years ago, Ortiz's monthly debt obligations have risen sharply. He estimates that the minimum payment on a $55,000 equipment loan has gone up by more than 60%.
"It was not part of the projection that it would skyrocket," Ortiz said.
Across the country, small-business owners are feeling the same pinch, according to
Out of more than 4,800 businesses surveyed, 54% said that higher interest rates had led to higher debt payments. Another 37% reported that they had delayed expansion plans or capital spending because of higher rates, and 22% said that they were having difficulty refinancing existing debt.
Meanwhile, only 11% of the businesses indicated that they'd benefited from higher rates by earning more interest on their deposits, while 19% said that the elevated rates were not affecting their businesses at all.
"The most common challenge — regardless of lender type — was high interest rates," the Fed's report stated.
The survey of U.S. small busineses was conducted between September and November 2023, or around 18 months after the Federal Reserve started hiking interest rates. The firms that were surveyed have fewer than 500 full time or part-time employees.
Among small businesses that borrow from large banks, 33% reported challenges with high interest rates last year, up from 21% in the 2022 survey. And at firms that borrow from small banks, the comparable figure for 2023 was 28%, up from 18% a year earlier.
"Capital is definitely difficult to come by. It is expensive," said Carolina Martinez, the CEO of the California Association of Micro Enterprise Opportunity.
She expressed concern about the potential for an uptick in predatory lending, saying that small businesses may eventually have to turn to products that aren't a good fit.
The regional Fed banks' survey found that demand for small-business financing declined between 2022 and 2023, while approval rates remained steady. Some 39% of the firms surveyed said they had more than $100,000 in debt, which was up from 31% in 2019.
The survey's findings were broadly consistent with the results of
Only 32% of the respondents to Goldman's survey said that they could afford to take out a loan in light of current interest rates. Another 53% said they could not afford to do so.
In
The Fed's rate-setting committee meets this week as market watchers look for signs about the likely timing of rate cuts that are generally expected to start later this year.
Ortiz, the owner of Gaspachos in Sacramento, said that the high cost of borrowing is only one of the factors that is squeezing his profit margins, even though revenues have been rising.
He pointed to the impact of inflation, which has led to higher labor costs and also raised the price of the goods that his restaurants purchase.
"Unfortunately from a profitability perspective, we're not there yet," Ortiz said. "Everything is excessively expensive now."
