• Biden signed a bill that raises debt ceiling to ensure the U.S. does not default on its debt

• The bill lifts the government’s borrowing limit by $2.5 trillion to about $31.4 trillion

President Joe Biden signed the bill raising the debt limit ceiling ensuring the U.S. will not default on its debt for the first time.

Biden signed the debt ceiling bill a day after the date estimated by the Treasury Department when it would run out of tools to pay the country’s bills.

The U.S. Congress on Tuesday approved raising the federal government's borrowing limit by $2.5 trillion to about $31.4 trillion, and sent the bill to Biden for his approval, early Wednesday.

Treasury Secretary, Janet Yellen, had warned of recession and job losses around the country in case the government failed to increase the borrowing limit.

Read more: Yellen warns U.S. may exhaust cash if Congress don't raise debt limit by Oct 18

Congress authorizes the United States government to borrow a certain sum of money to meet existing legal and financial obligations, which is called the debt limit. It includes social security and medicare benefits, military salaries, interest on the national debt, tax refunds, and others.

A vote to increase the debt ceiling allows the government to meet existing obligations that Congresses and Presidents of both parties have made in the past and does not authorize new spending commitments.

If Congress fails to raise the debt limit, the government will default on its debt payments downgrading Washington’s credit rating leading to higher interest rates.

This will directly impact small business owners who are seeking loans from private lenders. Even the more accessible Small Business Administration (SBA)-guaranteed loans, which are reflective of the market conditions, could become more expensive. 

On Tuesday, Congress passed legislation last week to create a fast-track process to allow Democrats to raise the debt limit in the Senate without help from Republicans.

Read more: Congress passes government funding bill, hours before deadline

The Democrats were expected to raise the limit by a larger figure so that the issue needn’t be addressed again until after the 2022 midterm elections. Some Democrats wanted to increase the debt ceiling by a larger amount or scrap it altogether. 

Also Read: Rep. Mitch McConnell offers short term suspension of debt ceiling

With inputs from CNBC