America’s AI Boom Could Keep Borrowing Costs High for Small Businesses

FILE PHOTO: Data center buildings are under construction during a tour of the OpenAI data center in Abilene, Texas, U.S., September 23, 2025. A total of eight data center buildings are planned to exist on the campus.

America’s artificial intelligence boom is creating an unexpected problem for the wider economy. While major technology companies continue investing heavily in AI infrastructure, the resulting demand may add to inflation, making it harder for the Federal Reserve to bring prices under control.

A Reuters report published on 19 October highlights the growing challenge facing US policymakers. Spending on data centres, computing infrastructure and related technology is helping drive economic activity, but it is also increasing demand for resources such as electricity, construction materials and computing equipment.

That creates a difficult balancing act for the Federal Reserve. Raising interest rates can help cool inflation, but higher borrowing costs also affect businesses and households that depend on loans to finance investment, property and everyday spending.

The problem is that large technology companies with substantial cash reserves may be better placed to continue investing even when interest rates rise. Smaller firms, by contrast, often rely on bank financing and have less flexibility when the cost of borrowing increases.

Why smaller businesses could feel the pressure

For a small business planning to open another location, purchase equipment or hire additional staff, financing costs can make the difference between proceeding and postponing an investment.

Higher interest rates can also affect customers. Households facing more expensive mortgages and credit card repayments may reduce discretionary spending, putting pressure on businesses in retail, hospitality and other consumer-facing sectors.

The AI investment boom could therefore create an uneven economic picture. Technology infrastructure companies may continue expanding, while businesses outside that sector face tighter financial conditions.

There is also a wider inflation concern. Building data centres requires significant amounts of electricity, land, equipment and construction work. When demand for these resources rises faster than supply, costs can increase. Those pressures may eventually affect other industries through higher energy bills, supplier prices and infrastructure costs.

However, AI investment is not necessarily inflationary in every respect. Over time, automation and productivity improvements could help businesses operate more efficiently, reduce administrative workloads and lower some costs. The challenge for policymakers is balancing these potential long-term gains against near-term demand pressures.

What founders should do now

For business owners, the lesson is to avoid building expansion plans around the assumption that borrowing will soon become cheaper.

Founders should review loan repayments, compare financing options and test whether planned investments remain viable if interest rates stay elevated for longer than expected. Cash flow forecasts should also account for possible increases in supplier costs and changes in customer spending.

Businesses adopting AI should assess the practical return on investment rather than following the trend simply because competitors are doing so. Tools that save measurable time or reduce operating costs may be worthwhile, but expensive projects need a clear business case.

The AI boom could ultimately deliver substantial productivity gains across the economy. In the meantime, smaller companies may need to navigate a difficult environment in which the biggest investors can keep spending while the cost of financing growth remains high.

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Do you think the AI boom will eventually make business more affordable, or could its investment costs keep pressure on smaller companies for years to come?