Posted On: February 18, 2026 by Farmers Trust & Savings Bank in: Business Banking
Written by Ryan Davelaar, VP Commercial Loan Officer
Today’s interest rate environment remains shaped by the aggressive rate hikes led by the Federal Reserve over the past couple of years, aimed at combating inflation. While rates have stabilized compared to the peak tightening cycle, borrowing costs remain meaningfully higher today than they were during the 2010–2021 era of historically low rates.
Here’s what that means for business borrowers in practical terms.
1. Borrowing is more expensive, especially for
variable-rate debt
If your business has:
- A variable-rate line of credit
- An SBA loan tied to prime
- Short-term revolving debt
You’re likely paying significantly more in interest than you were a few years ago.
For example, if your rate is Prime + 2%, and Prime is around 6.75%(as of 2-18-26), you’re looking at roughly 8.75% borrowing costs. That directly affects cash flow. A $500,000 balance at 8.75% costs $43,750 per year in interest alone. At 4.5%, it would’ve been $22,500. (This is an example only and may not reflect current offerings.)
That difference changes hiring plans, expansion timing, and pricing decisions.
2. Lenders are more cautious
Higher rates usually slow the economy. In response, banks tighten underwriting standards. That means:
- More documentation
- Higher credit score expectations
- Stronger cash flow requirements
- Lower loan-to-value ratios
If your margins are thin or revenue is volatile, approval is harder than it was during low-rate years.
3. Debt structure matters more than ever
In this environment, smart borrowers pay close attention to:
- Fixed vs. variable rates
- Term length
- Refinancing windows
- Covenant terms
Locking in a fixed rate can provide stability, even if it feels high compared to 2021 levels. The key question isn’t “Is this rate high compared to the past?” It’s “Can my business comfortably service this debt under conservative revenue projections?”
4. Cash flow is king again
When money was cheap, growth at any cost was common, especially in tech and venture-backed sectors. Now lenders and investors care deeply about:
- Positive cash flow
- Debt service coverage ratios
- Real profitability
If your business generates consistent operating income, you’re in a stronger position despite higher rates.
5. Opportunities still exist
Higher rates aren’t purely negative.
They can:
- Reduce competition from overleveraged players
- Improve pricing power in some sectors
- Create acquisition opportunities as weaker firms struggle
Well-capitalized businesses can sometimes negotiate better deal terms because fewer buyers are active.
Bottom line
Today’s rate environment rewards disciplined operators. Debt is no longer cheap leverage. It’s a real cost that must be justified by strong returns.
Unsure if you are making the best of your business loan strategies? Our Commercial Loan Officers can help guide you. Don’t hesitate to give one of them a call today, 712-262-3340.
