Bankers take heart as small businesses show resilience

Small businesses are demonstrating resilience in the face of continuing macroeconomic uncertainty, as more entrepreneurs are starting businesses and expressing confidence in the economy, both bankers and survey findings indicate.

According to a recent survey by Minneapolis-based U.S. Bancorp , increasing numbers of small-business owners rate their firms as successful and reported growth in the past year. Their responses dovetail with data gathered by the $676 billion-asset company's network of small-business bankers.

Though entrepreneurs are concerned about access to capital and the impact of tariffs, "we continue to see very positive and optimistic outcomes from small-business owners in terms of how their businesses are growing and how they're investing in the day-to-day," Shruti Patel, U.S. Bank's chief product officer for business banking, told American Banker.

With more than 36 million small businesses operating around the country, according to the Small Business Administration's Office of Advocacy, the sector is huge. Its well-being has a direct impact on banks' health — especially that of community banks, which do the lion's share of lending to small businesses.

Small businesses have faced so many challenges over the past five years — a pandemic, inflation, labor and supply chain disruptions — that they've developed "a certain amount of numbness" to macro factors, according to Richard Cabrera, head of corporate and small-business banking at the $52 billion-asset Umpqua Bank, a subsidiary of Tacoma, Washington-based Columbia Banking System. That has enabled them to concentrate on positioning their companies for growth.

"They can focus on their business. They can focus on investment," Cabrera told American Banker. "They realize the elements that they have within their control and grasp, and that gives them a more positive outlook."

U.S. Bancorp saw Small Business Administration lending activity spike during the agency's 2024 fiscal year. The trend carried over into fiscal 2025, which began on Oct. 1, 2024. Applications for SBA 7(a) loans, which totaled 2,674 through Wednesday, are well on their way to surpassing the 3,119 U.S. Bancorp received throughout fiscal 2024. The bank's numbers reflect the program-wide growth that SBA's flagship loan guarantee program is experiencing.

"We've seen really strong, robust activity around the SBA 7(a) program," Patel said. "We're actually not seeing any softness, despite the macroeconomic stressors."

Startup activity, too, "is still very strong," Patel said. Indeed, Census Bureau statistics show that so-called "high propensity" applications for a license to operate a small business are trending up in 2025. Licensing applications are categorized as "high propensity" if they are deemed likely to result in the formation of a business with a payroll.

"What I will say is that [the total of U.S. small businesses] is growing faster than the pre-COVID level," Patel said. "Small-business entrepreneurship is still very top-of-mind."

About 70% of the small businesses that U.S. Bancorp contacted in its Small Business Perspective report said now is a good time to start a small business.

Umpqua released its annual Small Business Barometer in June. Similar to U.S. Bancorp's findings, Umpqua showed small businesses' outlook improving despite significant concern surrounding inflation, a possible recession and tariffs. Forty-four percent of the small businesses Umpqua queried expect the economy to improve in the next 12 months. That's a four-year high.

"I think it was a little bit of a surprise," Cabrera said, referring to the uptick in optimism.

About half of the small and middle-market businesses that participated in Umpqua's survey expect revenue as well as demand for products and services to increase. Meanwhile, 50% of the small businesses surveyed reported that they anticipate investing to adopt or expand their use of generative artificial intelligence tools over the next 12 months.

Those numbers point to stability more than "frothy growth," according to Cabrera. The Business Barometer "is really a gauge of sentiment," he said. "It's an emotional feel that business owners have that somehow affects their behavior. … That means we think things are okay, steady, and steady's not bad."

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The U.S. Bancorp and Umpqua surveys were made public around the same time that the National Federation of Independent Business released its Small Business Optimism Index for May, showing a three-point increase to 98.8. The top score is 120. May marked the first time this year the index increased.

"While the economy will continue to stumble along until the major sources of uncertainty are resolved, owners reported more positive expectations on business conditions and sales growth," NFIB Chief Economist Bill Dunkelberg said in a press release.