Small business optimism is at its lowest since 2020 amid rising costs, according to the Federal Reserve 2025 Small Business Credit Survey..Revenue and employment growth was steady between 2024-25, with companies more likely to report decreased revenue than an increase. Expectations for employment and revenue growth over the next 12 months fell to their lowest marks since the Fed’s 2020 survey. Despite relatively low readings, outlooks are still more positive than during the covid-fueled economic downturn in 2020, according to the report. “Revenue and employment growth remained stable, but expectations for future revenue and employment growth declined,” according to the report. The percentage of small firms that applied at online lenders rose for the fifth straight year and is now similar to the rate applying at small banks, according to the survey. “Many firms said they turned to online lenders seeking faster decisions and a better chance of being funded, but 60 percent said borrowing costs at these lenders were higher than expected,” according to the report. Reaching customers and increasing sales were the top operational challenges for banks. Nearly half reported sourcing some inputs from outside the country in 2024, with 84 percent of those saying inputs now cost more. Seventy six percent passed on at least a portion of the cost increases, and 60 percent absorbed at least a percentage.The survey was taken from Sept. 3 to Nov. 14 and included more than 6,500 responses from companies with up to 500 employees. Other report findings included:The share of companies without debt rose to 31 percent to 29 percent, but the share of firms having more than $100,000 in debt remained relatively high at 38 percent.Forty six percent of companies used AI, most commonly in writing or marketing, planning or analysis, or for individual productivity. Nearly half of small businesses sourced at least some inputs from outside the country in 2024, while only 14 did so for more than half. Nearly 70 percent said tariff-related cost challenges were most evident in the retail space, and 62 percent said challenges were most prevalent in manufacturing.
