Small businesses—often hailed as the economic backbone of America—entered 2025 battling a cocktail of challenges: inflation, tariffs, labour shortages, and rising interest rates. Viewed in a broader context, most have been navigating these unfamiliar waters with caution—neither exuberant nor alarmed. While optimism may have dimmed compared to previous years, and underlying stressors persist, recent surveys reflect a quiet resilience in the small business community, with a focus on long-term growth and cautious hope for the future.
Impact on Business
Good-Bad Growth
The situation remains mixed. The Well-Being Index by Principal Financial reports that 56% of small businesses experienced growth, while 90% either maintained or increased their workforce. Nearly half reported raising wages in the last three months—suggesting both pressure from the labour market and confidence in consumer activity.
Similarly, a recent EY survey offered a largely positive picture: 73% of entrepreneurs reported higher sales, and 29% indicated growth exceeding 20%—a notable figure. However, 43% admitted that prevailing macroeconomic conditions are constraining operations. This tension between current challenges and future potential is increasingly evident.
Constant Financial Strain
QuickBooks and Paychex data suggest stagnating job growth and shrinking real revenues. Real revenues—measured monthly—fell by 0.06%, and wage growth hit a four-year low. This underscores financial stress for mom-and-pop operations that run on narrow margins. With interest rates rising, borrowing becomes costlier, potentially delaying investments and hiring plans.
Sector Designs and Variability
The impact is not uniform across industries. According to Intuit’s latest report, 7 of the 12 tracked sectors showed employment growth—evidence of uneven performance. While businesses tied to tech or those embracing AI and digital tools are seeing modest tailwinds, traditional retail and service sectors continue to feel the drag.
Effect on Consumers
Stable, But No Boom Period
Since small businesses are broadly holding off on layoffs and, in many cases, increasing wages, consumers are not seeing widespread job losses or service disruptions. However, stagnant revenue and hiring patterns indicate that consumers shouldn’t expect significant innovations in service, pricing, or variety—particularly in low-margin industries.
Disparate Optimism Across Generations
A report by U.S. Bank highlights a generational divide in economic sentiment. About 74% of Gen Z and millennial-owned Small businesses feel the economy is headed in the right direction, compared to just 52% of Gen X and boomer counterparts. This split may reflect differences in risk appetite, digital fluency, and adaptability. Younger entrepreneurs, buoyed by tech-driven models, appear more optimistic than older demographics, who remain cautious.
Key Challenges and Themes
Tariffs and Global Uncertainty
Tariffs remain a persistent concern. While four in five small business owners express stress over them, a slight majority still expect long-term positive outcomes—possibly indicating belief in protectionism or market realignment. Nonetheless, import-dependent sectors continue to feel the pinch.
Credit and Funding Conditions
Elevated interest rates have made capital more expensive, affecting small firms more than their larger counterparts with easier access to finance. Despite this, many small and medium enterprises still plan to seek funding and explore mergers and acquisitions, signalling that long-term growth strategies remain intact.
Digital Transformation and Innovation
Encouragingly, investment in AI and strategic restructuring features prominently on business agendas. This shows a trend toward digital integration, particularly among forward-looking firms. India’s DPI systems like UPI and account aggregators, while region-specific, point toward a global shift to open finance—a model U.S. SMEs may well adapt under local regulations.
Conclusion
Despite macroeconomic headwinds and persistent uncertainties around inflation, tariffs, and regulation, American small businesses exhibit a quiet resilience. While they are not celebrating, they are far from collapsing. Most are holding the line on employment, inching up wages, and staying the course on technology investment.
Optimism is cautious but not absent. The sheer number of small businesses maintaining stability in adverse conditions speaks volumes about the entrepreneurial spirit. If policymakers can stay mindful of credit access, tax policy, and trade concerns, small businesses are unlikely to abandon ship anytime soon.
