The Rate Environment and What It Means for Borrowing Costs
The Federal Reserve has moved off its 2023 peak of 5.25-5.50 percent, cutting the federal funds rate in stages through late 2024 and into 2025. As of the most recent Federal Open Market Committee guidance available at the time of writing, the target range sits in the mid-3 to low-4 percent band, with prime rate tracking roughly 3 points above that, in the neighborhood of 6.75 to 7.25 percent. That is meaningfully lower than the 2023-2024 peak but still well above the near-zero era of 2020-2021.
For small business borrowers, this matters most on floating-rate products. SBA 7(a) loans, many bank lines of credit, and a portion of equipment term loans are priced off prime or SOFR plus a spread. A 7(a) loan priced at prime plus 2.0 to 2.75 percent now lands roughly in the 8.75 to 10.0 percent range, versus 11 to 13 percent at the 2023 peak. Fixed-rate products such as SBA 504 debentures and many bank equipment loans reset more slowly, so borrowers who locked in during 2023-2024 are still carrying higher fixed costs than current market conditions would produce.
SBA Program Volume and Trends
SBA 7(a) lending set volume records in recent fiscal years, with FY2024 dollar volume around 31 billion dollars and loan counts near 70,000, driven partly by increased use for working capital and partly by acquisition and equipment financing bundled into larger 7(a) facilities. The 504 program, used heavily by manufacturers, contractors, and other equipment- and real estate-intensive operators, has run in the 6 to 7 billion dollar range annually.
A notable trend is the growing share of 7(a) proceeds going toward equipment and working capital rather than pure real estate, reflecting continued demand from trucking, construction, manufacturing, and healthcare equipment buyers. SBA's periodic fee reductions and its temporary elimination of some guaranty fees on smaller loans have modestly lowered the all-in cost of 7(a) borrowing for loans under 500,000 dollars, though these fee holidays have historically been subject to annual budget renewal and are not guaranteed to continue indefinitely.
Bank versus Non-Bank Credit Availability
The Federal Reserve's Senior Loan Officer Opinion Survey has shown banks tightening standards on commercial and industrial loans in net terms for several consecutive quarters, particularly for loans secured by equipment and for smaller commercial borrowers without long banking relationships. Regional and community banks, which historically originate a large share of equipment-secured term debt, have generally been more selective on loan-to-value ratios and have shortened amortization terms relative to 2021-2022 underwriting.
Against that backdrop, independent equipment finance companies, captive lenders tied to equipment manufacturers, and non-bank commercial finance companies have continued to originate volume, according to data tracked by the Equipment Leasing and Finance Association's Monthly Leasing and Finance Index. Non-bank and captive lenders tend to underwrite more on the collateral and the borrower's cash flow than on years in business or personal credit depth, which keeps credit available for equipment-heavy operators even when bank appetite narrows. The tradeoff is pricing: non-bank equipment loans and leases commonly run several points higher in APR-equivalent terms than a comparable bank facility, reflecting both higher cost of funds and higher risk tolerance.
Approval-Rate Signals from Lender Surveys
Monthly lending indices that track approval rates by lender type continue to show a consistent hierarchy. Large banks have historically approved roughly 13 to 15 percent of small business loan applications, small and regional banks closer to 18 to 20 percent, institutional and non-bank lenders around 25 to 27 percent, and alternative online lenders in the high 20s to low 30s percent range. These gaps have persisted through the recent rate-cutting cycle, suggesting that approval odds are driven as much by underwriting philosophy and collateral type as by the level of interest rates themselves.
For equipment-secured borrowing specifically, approval signals tend to run higher than unsecured products across all lender types, since the equipment itself serves as collateral and reduces loss severity in default. This is one reason equipment loans and leases remain one of the more accessible forms of term credit even during periods of tighter general underwriting.
What This Means for the Cost of Capital
Converting current pricing to APR-equivalent terms across common equipment-financing structures illustrates the spread in the market. Bank term loans secured by equipment currently run roughly 7.5 to 10.5 percent APR-equivalent depending on term and collateral age. SBA 7(a) and 504 loans used for equipment purchases run in a similar band, generally 8.5 to 11 percent once fees are amortized into the rate. Captive and manufacturer-affiliated financing programs, when not subsidized by promotional 0 percent offers, often land in the 9 to 14 percent range. Independent non-bank equipment finance companies and lease structures for borrowers with thinner credit files or newer operating history commonly price in the 13 to 22 percent APR-equivalent range once fees, residual assumptions, and factor-rate-style pricing are normalized.
The net effect of the last two years of Fed policy is a moderate easing in headline borrowing costs from 2023 peaks, but spreads charged for credit risk have not fully compressed back to pre-2022 levels. Lenders across bank and non-bank channels have generally held risk premiums steady even as the base rate has fallen, which means the benefit of Fed cuts has flowed more to the safest, most established borrowers than to newer or thinly capitalized equipment buyers.
Outlook
Barring a renewed inflation surge, the trajectory for the balance of 2026 points toward gradual, not dramatic, further easing in base rates, with the Fed likely to move in small increments if it moves at all in the near term. SBA volume is likely to remain near record levels given continued demand for equipment and acquisition financing, assuming program fee structures and guaranty levels are not disrupted by federal budget actions. Bank credit for equipment-heavy borrowers should stay selectively available, with non-bank and captive lenders continuing to fill gaps at a meaningful APR premium. Absent a shift in the broader economy, the cost of capital for equipment-secured borrowing is likely to drift modestly lower over the next several quarters, while the gap between the cheapest bank-priced credit and the most accessible non-bank credit remains wide.
This update reflects program terms, survey data, and rate levels published through mid-2026 and is subject to change as Federal Reserve policy, SBA fee schedules, and lender underwriting evolve.