'Shark Tank' investor Kevin O'Leary warns small businesses are battling a cash crunch - and a funding crisis is looming

• Kevin O'Leary warned the Fed's rate hikes are hammering America's small businesses.
• The "Shark Tank" star rang the alarm on a looming funding crisis due to steeper borrowing costs.

The Federal Reserve's war on inflation has caused a painful cash crunch for small businesses, and threatens to devastate that key sector of the US economy, Kevin O'Leary has warned.

In response to surging prices, the central bank has hiked interest rates from nearly zero to north of 5% within the past 18 months. As a result, many companies with fewer than 500 employees can no longer afford to borrow the money they need to fund even their basic operations, O'Leary told Fox Business on Tuesday.

"We've got a real crisis coming here, there's no cash for small businesses," O'Leary said. "And when the Fed raises rates another 50 basis points, that's gonna make it worse."

"If you're in the S&P 500, you have no trouble financing your business," he continued. "You can't say that about small business anymore. The cost of capital has gone through the roof."

The "Shark Tank" investor and O'Leary Funds chairman — whose nickname is "Mr. Wonderful" — warned that many family-owned businesses with only a handful of employees are battling to pay their bills, and unhappy with the historic pace of rate hikes.

O'Leary said he was on Capitol Hill to alert lawmakers about the pressing issue, and urge them to inform their constituents about the tax credits available to help beleaguered smaller enterprises.

"I'm here on the hill today in Washington talking to everybody I can about the problems I've got in just getting working capital for small businesses," he said.

O'Leary also weighed in on why prices surged in the first place, which led to the Fed hiking rates and heaping pressure on small businesses.

"When you turn on the spigot of government spending on either side of the aisle, that is how you get inflation," he said. "At some point you have to stop printing money."

The software entrepreneur and finance boss struck a more positive note about small companies' prospects earlier this week. He suggested they might be able to drive down their customer acquisition cost (CAC) and more than double their return on advertising by embracing Threads.

"I have never, ever seen anything like this," O'Leary told CNBC after Meta's new social-media platform racked up 100 million sign-ups in five days.