The Fed Raised Rates in September 2026: What It Means for Your Business Line of Credit

The Federal Reserve raised its target range by 0.25 percentage points on September 17, 2026. The range is now 3.75% to 4.00%.

It had stood at 3.50% to 3.75% since December 11, 2025. Rates did not hold. They moved up.

The WSJ Prime Rate is now 7.00% as of October 21, 2026. That rate sets the price of most variable business lines of credit. Here is what it means for you.

Where Rates Stand as of October 2026

The target range sat at 3.50% to 3.75% from December 2025 until September 2026. On September 17 the Fed raised it by 0.25 percentage points.

That put the range at 3.75% to 4.00% ^[1]. Prime followed and now reads 7.00% ^[2].

The next FOMC decision is due in late October. We do not forecast it. Rates can move in either direction from here.

How Prime Rate Connects to Your LOC Pricing

The link is mechanical. It matters for every variable-rate borrower.

Prime has traditionally sat 3 points above the top of the Fed funds range. With the top at 4.00%, Prime is 7.00% ^[2].

Prime moves when the Fed moves. It stays put when the Fed stays put.

A variable-rate line is priced at Prime plus a spread. The spread reflects your credit risk and your lender type.

As an illustration, a strong borrower at a bank might see Prime plus 1%, or 8.00%. A less established borrower at an online lender might see Prime plus 6.5%, or 13.5%. Actual spreads vary by lender and credit profile.

The Rate-to-Cost Math at Current Levels

Illustrative example, not a quote. The figures below are monthly interest on a balance, with no principal paid.

On a $250,000 balance at 8.00% (Prime plus 1%), interest is about $1,667 per month. At 10.50% (Prime plus 3.5%), it is $2,188. At 13.50% (Prime plus 6.5%), it is $2,813.

The gap between 8.00% and 13.50% is about $1,146 per month. That adds up when you carry a balance for 6 to 12 months.

On a $500,000 draw, 8.00% costs $3,333 per month. At 13.50% it costs $5,625.

Over 12 months, that is a $27,500 difference on rate alone. Lender choice is not a minor preference.

Variable vs. Fixed LOC Rates in the Current Environment

Variable pricing usually starts lower than fixed. Fixed rates often cost more for the same credit profile.

Lenders price fixed rates to cover rate risk. If rates fall after you lock, the lender loses.

The September increase shows the risk of variable pricing. Your carrying cost moves with Prime in both directions.

When Fixed Makes Sense Despite the Premium

Fixed pricing fits two cases. The first is a large multi-year draw where you want steady cash flow forecasts.

For example, a fixed rate 1.5 points above variable on a $400,000 balance costs $12,000 more over 24 months. That is the price of removing rate uncertainty. Illustrative example, not a quote.

The second case is a thin-margin business where a 1% rate rise would threaten viability. For those firms, predictability has real value.

For short draws such as inventory or payroll bridges, variable is often fine. The exposure window is narrow.

The Cost of Waiting: Opportunity Cost vs. Rate Savings

Some owners delay drawing on a line to wait for a lower rate. The math rarely supports it.

A 0.25% rate change on a $500,000 balance moves interest by $1,250 per year. That is about $104 per month.

Rate timing is a distraction. Capital availability is the real variable.

If you do not need capital now, waiting for clarity can make sense. But waiting to apply is not the same as waiting to draw.

Apply while your financials are strong. Then draw based on business need, not rate timing.

Three Borrowing Strategies for the Current Rate Environment

There are three defensible positions. The table compares them on a $250,000 draw. It assumes an 8.00% rate today and a 0.25% move either way.

Illustrative example, not a quote. Figures are monthly interest with no principal paid.

The Split Draw Strategy in Practice

The split draw is often the right answer. For projects that unfold over 6 to 12 months, draw what you need now.

Stage the rest and draw it when the need arrives. The rate may be higher or lower by then.

This works best when the project is naturally phased, such as construction or inventory buildup. It works poorly for a single lump-sum need like an acquisition.

What to Do If You Have a Variable LOC Already Open

Review your current rate and spread. Check it against the 7.00% Prime rate.

Established businesses with clean books can sometimes negotiate a lower spread. You could also refinance to a lower-spread product.

Do not assume your current rate is the best available. For related context, read our analysis of how 2026 tariff pressures are driving LOC demand.

Practical Moves for LOC Borrowers Right Now

You do not control the Fed. You control your credit profile, your lender relationships and your draw timing.

• If you have a LOC, know your rate type. Variable or fixed? If variable, your rate moves with Prime. If you are not sure, ask your lender today.
• If you are shopping for a LOC, compare bank and online offers. Bank lines often price lower than online lines. Exact pricing varies by lender and credit profile. See our comparison of online lenders vs. banks for business lines of credit.
• If you are weighing LOC vs. SBA, compare the rate caps. SBA 7(a) variable rates are capped at the base rate plus 3.0% to 6.5%, depending on loan size ^[3]. With Prime at 7.00%, that is 10.00% to 13.50%. See our full LOC vs. SBA loan comparison for 2026.
• Consider securing a line before you need it. Approval is easier while your financials are strong. See why securing a standby LOC before you need it can help.

Frequently Asked Questions

What is the current Fed Funds Rate in 2026?

The Fed raised its target range by 0.25 percentage points on September 17, 2026. The range is now 3.75% to 4.00%.

It had been 3.50% to 3.75% since December 11, 2025. The next FOMC decision is due in late October.

How does the Fed Funds Rate affect my business line of credit rate?

Most variable-rate business lines of credit are priced at the WSJ Prime Rate plus a spread. Prime is 7.00% as of October 21, 2026.

Your rate is Prime plus your lender's spread, which varies by credit profile and lender type. As an illustration, Prime plus 1% is 8.00%. Prime plus 6.5% is 13.5%.

Illustrative example, not a quote.

Should I draw on my LOC now or wait for a rate change?

Rates can move either way, so timing is a guess. On a $500,000 balance, a 0.25% change shifts interest by $1,250 per year.

That is often small next to the cost of delaying needed capital. If you have a real business need, drawing now is usually reasonable.

Are fixed-rate or variable-rate LOCs better in 2026?

Variable-rate lines now carry upside rate risk because the Fed has just raised rates. Fixed-rate lines offer certainty but often cost more than variable for the same credit profile.

For a large multi-year draw, fixed pricing may be worth a premium. For short draws, variable is often fine because the exposure window is narrow.

Sources

Figures labeled as illustrations are examples, not market data. Rates change often. Confirm current terms with a lender.

Last reviewed: October 24, 2026

• Federal Reserve Board, Open Market Operations: federal funds target range, September 17, 2026
• Federal Reserve Bank of St. Louis (FRED), Bank Prime Loan Rate, 7.00% as of October 21, 2026
• U.S. Small Business Administration, 7(a) loan terms, conditions and eligibility