Small businesses employ nearly half of America’s workforce and generate roughly 43% of U.S. economic output. But they cannot grow, hire, or survive without reliable access to capital and credit. Any policy that restricts that access, no matter how well intentioned, poses a direct threat to small business prosperity and, by extension, to America’s economic future.
That’s why business owners are concerned about a policy proposal, put forward by Sen. Bernie Sanders (I-VT) and recently embraced by President Donald Trump, that risks doing serious harm: rigid caps on credit card interest rates.
With small business owners already struggling with traditional loans, many have begun to rely on personal and business credit cards. In fact, according to the National Bureau of Economic Research, over half of small businesses utilize credit cards, each spending an average of over $24,000 a month.
A quick fix cannot be carelessly applied to such a critical resource, especially one that could lead to higher fees, reduced rewards, and, most importantly, less access to credit for the small businesses and individuals policymakers claim to be helping.
Research written by respected economist Stephen Moore, published by the Committee to Unleash Prosperity, underscores a fundamental economic reality: interest rate caps are price controls. And history shows us that price controls distort markets, reduce supply, and create devastating unintended consequences.
The result of a credit rate cap is no different. According to the Electronic Payments Coalition, a 10% cap would severely impact nearly every borrower with a credit score below 740 through drastic reductions, or even elimination, of credit. To put that in perspective, roughly 85% of Americans have a credit score lower than 740.
For our nation’s small businesses already operating on thin margins, restricted credit access can be ruinous. It can mean delaying expansion, forgoing new hires, missing a payroll, or closing altogether. At a time when entrepreneurs are already navigating inflation, workforce shortages, and economic uncertainty, limiting their financial tools is not consumer protection. It is economic sabotage.
For many entrepreneurs, especially those without access to large commercial loans or lines of credit, credit cards are used to manage cash flow, cover payroll during slow periods, purchase inventory, and respond to unexpected expenses. Research consistently shows that a majority of small businesses rely on credit cards at some point during the year, particularly in their early and rapid growth stages. The Federal Reserve found that more than 50% of small businesses used credit as a source of financing. When traditional financing is out of reach, flexible credit fills the gap.
Credit rate caps are especially consequential for both low and moderate-income communities and Hispanic entrepreneurs. Hispanic-owned businesses are among the fastest-growing in the nation, yet they are less likely to receive traditional bank financing. In fact, according to Stanford, Hispanic entrepreneurs are approved at roughly half the rate of the general market.
When credit markets tighten, these entrepreneurs are often the first to feel the impact and the last to recover. Policies that shrink access to mainstream credit push them toward less regulated, more expensive, or predatory alternatives, such as payday loans and others, where annual interest rates can be more than 300%.
Credit is equally critical for American families and the economy at large. Credit card spending facilitates over $5 trillion in annual transactions, driving one-third of all consumer purchases. It also accounts for roughly one-quarter of our nation’s GDP. A sudden contraction in credit availability would not slow the economy. It would shock it. The retail, hospitality, logistics, and service industries would feel an immediate collapse in demand.
With nearly a quarter of small businesses in “survival mode” and over half of families struggling to cover their basic needs, we can little afford an economic stunt. If credit rate caps are implemented, there will be no strategy or budget to adapt. Without access to credit, the money would simply vanish from the marketplace entirely, depriving consumers of goods and services and depriving small businesses of sales.
TRUMP EMBRACES FAILED LEFT-WING, CREDIT CARD INTEREST RAP CAPS
There are smarter ways to support consumers and small businesses without undermining access to critical financial tools. Transparency, financial education, competition, and innovation can all help lower costs while preserving choice. Blunt instruments like rate caps, however, threaten to choke off opportunity at a time when our economy needs entrepreneurship more than ever.
Protecting access to credit is about defending the small businesses that power our economy. By weakening their ability to access capital, we weaken America itself. If policymakers truly care about American entrepreneurs and national prosperity, they must stop confusing restriction with reform.
Javier Palomarez is the President and CEO of the U.S. Hispanic Business Council.
