What Happened to the Fed Funds Rate
The Federal Reserve cut its benchmark rate three times across the back half of 2025: a quarter point on September 18, to 4.00 to 4.25%; another quarter point on October 30, to 3.75 to 4.00%; and a third on December 11, to 3.50 to 3.75%. That is 75 basis points of cuts in four months, layered on top of 100 basis points already cut across three separate meetings in 2024.
By any conventional read, that is a meaningful easing cycle, the kind that should, in theory, make borrowing cheaper across the board.
The Assumption This Piece Is Arguing Against
The conventional wisdom runs in a straight line: rates fall, bank credit gets cheaper and easier to access, and a business that would have turned to an expensive product like an MCA out of necessity has a cheaper, slower alternative available instead. Under that logic, a rate-cutting cycle should shrink MCA demand more or less automatically, the same way a lower mortgage rate pulls buyers back into a housing market.
That chain of logic has a real weak link, and it shows up directly in the Fed’s own lending data.
What Bank Lending Standards Did
The Federal Reserve’s July 2026 Senior Loan Officer Opinion Survey, covering the second quarter of 2026 and drawing responses from 56 domestic banks, found lending standards for commercial and industrial loans to firms of all sizes, small firms specifically included, were basically unchanged on net. Loan demand from small firms was reported as similarly unchanged. Compared with the same survey a year earlier, banks reported standards were somewhat easier across most categories, but the shift was incremental, not a wholesale loosening that would meaningfully change who qualifies for a bank loan.
Two full quarters after the last rate cut, the underwriting bar at a bank had not moved in any dramatic way.
Why That Gap Matters More Than the Rate Itself
MCA demand is not primarily a function of what borrowing costs relative to a benchmark rate. It is a function of who can get approved, and how fast. A merchant who does not qualify for a bank line of credit, or cannot wait the weeks a bank underwriting process typically takes, is not meaningfully better off because the Fed cut rates three times if the bank’s own underwriting standards for a business their size stayed basically unchanged the whole way through.
This is reasoning, not a cited statistic: the rate cut lowers the cost of credit for businesses that can already access it. It does nothing for the underwriting gate itself, which is the actual constraint driving a real share of MCA demand.
What Would Have to Change to Shrink Demand
If bank lending standards loosened meaningfully instead of staying “basically unchanged,” a genuinely larger share of small businesses would clear a bank’s own underwriting bar, and some of that group would migrate away from MCA toward cheaper bank credit. That is the scenario that would shrink demand. A rate cut alone, without that underwriting shift, leaves the population of businesses an MCA serves largely where it was.
The Fed’s own survey data through mid-2026 shows that underwriting shift has not happened yet, even after three consecutive rate cuts.
Reading This Without Overclaiming It
None of this argues rates never matter to MCA demand at any level, or that a large enough, sustained loosening of bank standards could not eventually shift the picture. It argues against the simple, automatic version of the story: rate cut in, MCA demand down, on a predictable one-to-one basis. The Fed’s own lending-standards data through mid-2026 does not support that simple version.
A broker reading rate-cut headlines as a demand threat is reading the wrong data point. Bank lending standards are the one that moves the number.
Sources
The external data in this article draws on the sources below. Figures described in the text as estimates or industry triangulations are directional and are not attributed to a single dataset.
- Federal Reserve Board, open market operations and FOMC decision history
- Federal Reserve Board, July 2026 Senior Loan Officer Opinion Survey on Bank Lending Practices