Main Street Monday: Fed Says Small Businesses Turn to Credit Cards as Bank Loan Originations Decline

August 3, 2026

Bob Coleman
Founder & Publisher

Main Street Monday: Fed Says Small Businesses Turn to Credit Cards as Bank Loan Originations Decline

Small businesses increased their use of credit cards during the first half of 2026 as traditional loan originations declined.

That is the Federal Reserve’s conclusion in its July 2026 Monetary Policy Report.

The Fed described a clear divide between large companies and Main Street businesses.

“Financing conditions for large businesses remained generally accommodative,” the Fed reports. Corporate bond issuance continued at a “robust pace,” with large publicly traded technology companies borrowing to finance artificial intelligence infrastructure.

Then the Fed turned to small businesses.

“By contrast, small business financing conditions remained somewhat restrictive.”

The Fed says, “Loan originations declined somewhat, on net, while credit card borrowing by businesses steadily increased in the first half of this year.”

The Fed tied the increase directly to small businesses’ difficulty obtaining bank loans and credit lines. 

“The increasing level of revolving balances on small business credit card debt, a high-cost credit option, suggests small businesses have been finding it difficult to obtain loans or credit lines from banks,” the Fed says.

The Fed also found that borrowing costs remain elevated.

“Interest rates on short-term loans and credit cards have fallen somewhat in 2026, but they remain high by recent years’ standards.”

Credit performance is beginning to weaken.

“Short-term delinquency rates have begun to tick up after moderating somewhat earlier this year,” the Fed reported. “They now stand above their pre-pandemic levels.”

The small-business findings contrast with what is happening across the banking system.

Banks’ core loan holdings grew at a 5.5% annualized rate during the first quarter and expanded at a similar pace during the second quarter. Banks reported easier lending standards for the third consecutive quarter and stronger demand for the fourth consecutive quarter.

Bank credit is growing.

Small-business loan originations are not.

Instead, more small businesses are carrying revolving credit card balances that the Federal Reserve calls a “high-cost credit option.”