The National Debt: What It Means for the Small Business Owner
The federal debt just went over the $40 trillion amount – and to many often feels like an abstract Washington problem — a number too large to matter to a business writing payroll checks in Phoenix, Seattle or San Diego. It isn't. The debt reaches small business owners through a handful of concrete channels, and it hits both the business and the owner's personal balance sheet.
How It Hits the Business
Higher borrowing costs. The federal government borrows more than any other entity in the economy. Large, sustained deficits increase the supply of Treasury debt competing for the same pool of savings that would otherwise fund business loans, equipment financing, and commercial real estate. When Treasury yields rise to attract buyers, commercial lending rates tend to follow. A line of credit or SBA loan that would have cost 6% can cost 8–9% in a higher-rate environment shaped partly by federal borrowing needs — a direct hit to margins on any business carrying debt.
Inflation risk. Persistent deficits, especially when monetized or financed in a way that expands the money supply, add upward pressure on prices. For a small business, that shows up as rising costs for materials, labor, insurance, and rent — often outpacing the business's ability to raise prices without losing customers.
Tax policy uncertainty. A growing debt load increases pressure on future Congresses to raise revenue — through higher rates, reduced deductions, or the expiration of favorable provisions (bonus depreciation, QBI, R&D expensing, and similar items have all been political footballs in recent years). That uncertainty makes long-term planning — equipment purchases, hiring, entity structuring — harder to model with confidence.
Crowding out of capital. Every dollar of savings absorbed by government bonds is a dollar not available for private lending or investment. Over time, this can mean tighter credit standards and less available capital for expansion, especially for smaller, less-established borrowers who are always the first to feel a credit squeeze.
How It Hits You Personally
Retirement and investment accounts. Higher long-term interest rates depress bond values and can create headwinds for equity valuations, affecting 401(k)s, IRAs, and other retirement savings — the same accounts many owners rely on because they lack a traditional pension.
Cost of living. Inflation driven partly by deficit spending erodes purchasing power on the personal side just as it does on the business side — groceries, healthcare, insurance, and housing costs all compound the squeeze.
Future tax exposure. As a pass-through owner, your personal return is your business return. Any future move to raise individual rates, cap deductions, or claw back pass-through benefits to address the debt lands directly on your Form 1040.
Estate and succession planning. Rising debt increases the odds that future Congresses revisit the estate tax exemption downward, which could matter for estates approaching or will approach $10 million in value for owners planning to transition a business and personal assets to the next generation.
What This Means for Planning Now
None of this is a reason to panic, but it is a reason to plan conservatively, and maybe push your Congressional representative: build in a cushion for possible increases in interest-rates when you use debt-financed growth, revisit entity and retirement structuring regularly, and maybe most importantly get Congress to cut federal spending – starting with action on the $175 billion in Doge cuts the executive branch delivered to Congress on a silver platter.
Scott C Turner, CPA
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