Last Wednesday the Federal Reserve held its benchmark rate at 3.75%–4.00%, but the vote was 10–2, and both dissenters wanted another quarter-point hike (Federal Reserve). The statement said inflation "remains elevated" and upgraded the economy's pace to "strong" (Reuters). Futures markets now put the odds of a December increase to 4.00%–4.25% at about 71% (Yahoo Finance), with the next decision due December 8–9 (J.P. Morgan).
A pause is not a reprieve. It's five weeks of notice. Use them to learn exactly what the next move costs you.
The number: $2,500
For every $1 million of floating-rate debt, each 25-basis-point move changes your annual interest cost by $2,500.
That's it. Multiply your floating balance by 0.0025. A company carrying $6 million on a revolver and a variable term loan pays about $15,000 more per year for each quarter-point increase, and $60,000 more if rates rise a full point.
Most founders don't know their number, for a simple reason: their floating exposure is spread across a line of credit, a term loan, equipment financing and sometimes a seller note, each with a different rate reset. Here's how to find it in about an hour.
The one-hour check
List every debt facility. For each one, note the balance, the rate, and whether it's fixed or floating. Most bank lines float off prime or SOFR. With fed funds at 3.75%–4.00%, prime is typically about 7.00%.
Total your floating balance. Include your average revolver usage, not just today's balance.
Run three cases. Calculate annual interest cost at today's rate, +25 basis points (a December hike) and +100 basis points.
Test your covenants. Recalculate your interest coverage or fixed-charge coverage ratio at +100 basis points using your 2027 budget. If the cushion over the covenant minimum falls below about 15%, treat that as a warning.
Decide one action. Options include using excess cash to pay down the revolver, fixing a portion of the term loan, shortening payables-funded growth, or simply calling your lender before year-end to discuss the forecast.
A quick example
Take a $20 million distributor with $4 million drawn on a revolver at prime and a $3 million floating term loan. Its floating balance is $7 million, so each quarter point costs about $17,500 a year. Suppose total interest, including fixed-rate equipment debt, is about $770,000, the bank requires interest coverage of at least 3.0 times, and the 2027 budget shows 3.6 times. At +100 basis points, $70,000 of added interest pushes coverage to about 3.3 times. That still passes, but the cushion has fallen to roughly 10%. That's the moment to act, not after the first quarterly covenant certificate.
Why now, not in December
Your lender will see your year-end numbers in the first quarter. You should see them first. A one-hour check this week tells you whether a December hike is a rounding error or a 2027 problem, and it leaves time to act before year-end, when lenders and boards are both reviewing next year's plan.
Whatever the Fed decides in December, you'll already know what it means for your business.
John Mortenson is a fractional CFO and founder of Straiteis Consulting.
