The post-pandemic recovery has lost momentum for many small business (SMBs) owners, according to the Federal Reserve’s latest small business credit survey, raising concerns for the broader U.S. economy.
The Federal Reserve’s latest small business credit survey has illustrated disappointing sentiment and the deteriorating financial situation of the U.S. small and mid-sized businesses (SMBs).
Small businesses are the backbone of the nation, employing nearly half of the workforce and driving over 43% of economic growth. Yet, many are struggling with declining revenues, rising debt, and growing uncertainty about the future. We must note that the survey took place long before the recent announcement of increased trade tariffs which exceeded investor expectations and sent the markets spiralling.
In 2024, 41% of small businesses in the United States reported a drop in revenue, compared to 38% that saw an increase. It is the first time such a negative misbalance has happened since 2021. Profitability fared slightly better, with 46% of small businesses operating at a profit, while 19% broke even and 35% reported losses. However, the revenue performance index also fell by seven points in 2024, following a three-point drop the previous year. These insights come from 7,600 surveyed businesses with fewer than 500 employees.
This financial data aligns with growing concerns among American business owners. The MetLife and U.S. Chamber of Commerce Small Business Index also found that 35% of small business owners worry about their revenues in Q1 2025, marking a 10 percentage point increase from the previous quarter. Similarly, Intuit’s research showed that small businesses with fewer than 10 employees saw a 0.5% decline in real revenue growth this February compared to a year ago.
One of the biggest challenges remains rising operating costs, including goods, services, and labour. On top of that, shifting federal policies on tariffs and immigration create uncertainty, making it harder for small businesses to plan for the future. “Small businesses, because of the uncertainty, are starting to feel the squeeze,” says Tom Sullivan, vice president of small business policy at the Chamber of Commerce. Without confidence in future revenues, many business owners are hesitant to invest in growth.
This translates to deteriorating confidence and worsening spending plans. The National Federation of Independent Businesses (NFIB) reported a 2.1-point drop in small business confidence in February. It was the second consecutive month when fewer SMB owners expected better business conditions in the next six months. In March and April, the situation with business sentiment is unlikely to improve, considering the current economic realities.
Additionally, many small business owners are concerned about tax policy. The 2017 Tax Cuts and Jobs Act is set to expire at the end of 2025, which could increase tax rates to 43%. Sullivan believes making some of these tax provisions permanent could provide the certainty needed for small businesses to confidently invest, hire, and scale up their operations.
Despite these headwinds, the entrepreneurial spirit in the U.S. remains strong. More than half (58%) of business owners reported making capital investments in the last six months. While future spending plans dipped slightly (19% expect capital outlays in the next six months, down 1 percentage point from January), new business formation remains a bright spot. In February, business formation applications rose by 7.8% from January 2025 and remain 33% higher than pre-pandemic levels.
