Add rising interest rates to the challenges that small businesses are already grappling with, including inflation, labor shortages and strained supply chains.Some small businesses are cutting back on borrowing, paying down debt or delaying expansion plans as interest rates rise. Others worry that rising rates will boost prices charged by suppliers and crimp customer demand.V8 Speed & Resto Shop, which specializes in restoring and upgrading muscle cars, began asking customers to prepay for parts orders totaling $10,000 or more two years ago as delivery times lengthened. This fall, with interest rates rising, it began requiring prepayments on orders exceeding $2,000, to reduce financing costs incurred when it pays vendors upfront but doesn’t collect money from customers until the part is installed.“We’re trying not to need the lines of credit or the credit card,” said Kelle Oeste, owner of the 28-person muscle-car restoration shop based in Red Bud, Ill.In November, the Federal Reserve raised its benchmark federal-funds rate by 0.75 percentage point, the fourth such increase this year, and said further rate increases were likely. For small businesses, those rate increases translate to higher costs on everything from credit cards to lines of credit to variable-rate small business loans. New financing has also gotten more costly.David Gill, chief executive of Cold Freight Services, a provider of dry ice and refrigerated courier services in Austell, Ga., has seen the interest rate on his company’s business credit card jump to 20.99% from 17.24% since April. “We use credit cards for everything,” including fuel, hotels, supplies and other expenses, said Mr. Gill, who has about 40 employees. “We are kind of hostage to the rate.”Forty-six percent of small-business owners said higher interest rates are affecting their business, according to an November survey of roughly 600 small businesses for The Wall Street Journal by Vistage Worldwide Inc., a business coaching and peer advisory firm. Another 25% of those surveyed said rising rates hadn’t yet had an effect, but anticipated they would.For some businesses, the impact is indirect. Rising interest rates have already hurt sales at Brooklyn SolarWorks, a designer and builder of rooftop solar systems. About one-third of residential customers finance their solar systems, which typically cost $30,000 to $70,000.Financing options that let buyers buy down their interest rate to 0.99% or 1.99% have largely disappeared, said T. R. Ludwig, CEO of the Brooklyn, N.Y., company, which has 73 employees. Uncertainty over the future direction of interest rates makes it difficult to determine whether a solar installation will save money after factoring in financing costs and what will happen during the months it takes to get a project done.“The interest rate part of it, it’s pretty rough waters out there right now,” Mr. Ludwig said.At Reverence, a fine-dining restaurant in the Harlem neighborhood of New York, higher interest rates have pushed monthly debt service costs $2,000 higher, bringing them to $5,000. “For a business like mine, that $2,000 is my paycheck,” said chef Russell Jackson, who owns the three-year-old restaurant with his wife Lora.Higher rates are also compounding the challenges of rising costs and new expenses, such as for Covid tests, and customer traffic that has been slow to rebound.“We are struggling,” said Mr. Jackson, who has two employees, down from as many as eight, and is looking for additional financing. “We are fighting tooth and nail.”Christopher Kline said he has reduced hours by 25% for most employees at Eric & Christopher, a Perkasie, Pa. maker of silk-screened pillows and totes, after large retailers with too much inventory cut back on new purchases. “Normally, I rely on those accounts to help fund research and development,” said Mr. Kline, who has 25 employees.The owner is delaying investments that could open up new markets. Borrowing to finance those expenditures has become too costly, he said, now that the rate on the company’s line of credit has increased to 6.5% from 3.75% in March.Some entrepreneurs are taking steps to reduce borrowing costs. Design Supply Doors, a Kansas City, Mo., commercialsubcontractor, paid cash when it purchased four small SUVs for its sales team this summer. When interest rates are 3% or 4%, “it’s not that painful,” said Rebecca Stowe, chief executive of the 38-person company, which supplies and installs frames, doors and hardware in hospitals, hotels and office buildings. “When it’s 6% or 7% on vehicle loans, it doesn’t make sense to sit on the cash.”GA Expertise, Inc., a designer and installer of factories that process crude palm oil, recently asked suppliers for an extra 30 days topay, said Hugues Posschelle, general manager of the 13-person company.Vendors typically ask for payment before equipment ships, while customers don’t pay until after delivery, requiring the nearly 40-year-old company to rely on its credit line in between. Equipment purchased from Asian vendors can take two months or more to reach customers in Central and South America.The Miami-based company increased its credit line in November to $750,000 from $400,000, but the larger credit line carries a higher interest rate. Mr. Posschelle said that he used to view interest expense as a cost of doing business. “Now, it’s almost [equivalent to] a full-time employee,” he said.Some small businesses are delaying plans to grow. Kent Adhesive Products Co., a custom coater and converter ofadhesives and flexible materials, planned to spend $15 million to expand its manufacturing facility and purchase a new state-of-the-art machine. The Kent, Ohio, company pushed back the decision a few quarters at the start of this year because of inflation. This fall, it tabled the planned expansion until at least 2024 because of rising interest rates.“It changed the financials of how the project would look,” said Elie Merheb, chief executive of the 80-person manufacturer. “We were nervous about what carrying that debt would do to our balance sheet and income statement,” particularly given the potential for a softening economy, he said.