The Federal Reserve cut rates three times in late 2025, but commercial borrowing costs have barely moved. While variable-rate loans tied to prime have become slightly cheaper, fixed-rate business and commercial real estate loans remain anchored to Treasury yields still near 4%. For many borrowers, the expected wave of cheaper financing never arrived.
Key Takeaways
- The Fed cut rates three times in late 2025 (75 bp total), dropping prime from 7.50% to 6.75%, but the 10-Year Treasury actually rose slightly from 4.04% to 4.06%, leaving fixed-rate commercial loan pricing essentially unchanged.
- Variable-rate borrowers have seen real savings: a $500,000 SBA 7(a) loan at prime + 2.75% costs 9.50% today versus 10.25% pre-cut, saving roughly $310 per month on a 10-year amortization.
- Fixed-rate commercial products remain expensive because they benchmark to Treasury yields, not the fed funds rate. SBA 504 debentures price in the mid-5% range and conventional fixed-rate CRE loans price at 5.5% to 7%, both nearly identical to pre-cut levels.
- Two parallel rate environments now exist: variable-rate products (SBA 7(a), lines of credit, conventional term loans) have repriced lower, while fixed-rate products (SBA 504, fixed CRE) have not moved, creating divergent borrowing cost trajectories depending on product type.
- The March 17-18 FOMC meeting and its updated dot plot projections will be the next catalyst; an upward shift in the median dot would reinforce the higher-for-longer baseline and signal fewer cuts for 2026.
Key Metrics
Higher for Longer: The Numbers
Context: Why Rates Are Staying Put
Three 25-basis-point cuts in September, October, and December 2025 brought the fed funds target range from 4.25%-4.50% down to 3.50%-3.75%, with prime falling from 7.50% to 6.75%. Including the 2024 cuts, prime now sits 175 basis points below its July 2023 peak of 8.50%. But the January 2026 FOMC held steady, and the committee's language suggests no urgency around further reductions. Core services inflation remains sticky, and employment data is solid enough that the Fed faces no pressure to cut again.
Market pricing tells the same story. Treasury yields, which drive fixed-rate commercial products, have barely moved despite 75 basis points of Fed cuts. During the 2019-2020 easing cycle, the 10-year Treasury fell below 1%. This time it is holding above 4% even as the Fed eases. The bond market does not expect rates to fall meaningfully from here. Treasury yields remain elevated partly because markets expect persistent inflation and continued federal borrowing, both of which push long-term interest rates higher.
The Rate Disconnect
The core dynamic of this cycle is a disconnect between short-term policy rates and long-term market rates. The Fed has cut, but the benchmarks that price fixed-rate commercial loans have not followed.
10-Year Treasury vs Fed Funds Rate
| Benchmark | Sep 2025 (Pre-Cut) | Current (Mar 2026) | Change |
|---|---|---|---|
| Fed Funds (upper) | 4.50% | 3.75% | -75 bp |
| Prime Rate | 7.50% | 6.75% | -75 bp |
| 10-Year Treasury | 4.04% | 4.06% | +2 bp |
| 5-Year Treasury | 3.59% | 3.63% | +4 bp |
Variable-rate borrowers benefit from the 75-basis-point drop in prime since September. But fixed-rate borrowers, whose products are priced off Treasury yields, are paying essentially the same as before the 2025 cuts began. Treasury yields have actually risen slightly as term premiums reprice and the market adjusts inflation expectations.
Analysis
Two different rate environments are operating simultaneously. Variable-rate products tied to prime, including most SBA 7(a) loans, business lines of credit, and many conventional term loans, have seen real cost reductions. A $500,000 SBA 7(a) loan at a typical rate of prime + 2.75% costs 9.50% today versus 10.25% last September. That translates to roughly $310 per month in interest savings on a 10-year amortization.
Long-term Treasury yields serve as the primary benchmark for fixed-rate commercial loans, including most commercial real estate products and SBA 504 debentures. Fixed-rate products tell a different story. SBA 504 loans and conventional fixed-rate commercial real estate loans are benchmarked to Treasury yields. With the 10-year at 4.06%, an SBA 504 debenture rate lands in the mid-5% range, essentially unchanged from last spring. A conventional fixed-rate CRE loan at Treasury plus 150-300 basis points prices around 5.5% to 7%, depending on lender type and property quality.
The practical consequence: if you are evaluating a fixed-rate product, the relevant question is not "where is the fed funds rate" but "where is the 5- or 10-year Treasury." These benchmarks can move independently of Fed policy for months at a time.
Borrower Implications
For businesses that delayed financing decisions expecting further rate drops, the math has changed. If the Fed holds through mid-2026, current rates become the baseline, not a waypoint. The cost of waiting is not just the unchanged interest rate; it is the foregone investment, revenue, or expansion that the capital would have supported.
Variable-rate borrowers drawing on lines of credit at prime + 1% to prime + 2% face 7.75% to 8.75% today. That is 75 basis points cheaper than September and stable enough to model against. For projects with clear returns, whether revenue-generating equipment, property acquisition, or working capital to service a new contract, the analysis should rest on project cash flows, not rate speculation.
Fixed-rate borrowers should focus on Treasury yields, not Fed headlines. If Treasuries rise from here due to inflation persistence or fiscal deficits, today's SBA 504 rates in the mid-5% range for 20- or 25-year terms may look attractive in hindsight.
Strategic Takeaways
For borrowers evaluating financing decisions today, three strategic conclusions stand out.
- Do not time the rate cycle. Base capital decisions on project economics, not on forecasts of the next cut. A detailed breakdown of how to evaluate competing loan offers can help frame the analysis.
- Variable-rate savings are real but may be fully priced. The 75 bp drop from September is already reflected in current loan offers. Further cuts are uncertain. If you can service debt at current levels, the risk-adjusted case for acting now is stronger than waiting.
- Review existing floating-rate debt. If your cost of capital assumptions were built on expectations of deeper cuts, revisit the refinancing math at today's levels rather than at hoped-for levels.
What to Watch
The March 17-18 FOMC meeting will release updated economic projections and the dot plot. If the median dot shifts upward, signaling fewer projected cuts for 2026, the higher-for-longer thesis strengthens and current rate levels become the planning baseline for the year.
We will publish an updated analysis following the March FOMC decision. For the latest benchmark rates, see our weekly borrowing cost snapshot.
Businesses evaluating financing options at current rate levels can compare products, requirements, and rate structures in CapitalXO's financing guides.