Small businesses grow less hopeful for future: Fed study

• Key Insight: The share of small businesses expecting to grow has fallen to its lowest level since 2020, according to a new study by the 12 regional Federal Reserve banks.
• Supporting Data: The study's measure of revenue expectations — the percentage of businesses expecting growth minus the percentage anticipating a decline — dropped from 39 in 2024 to 33 in 2025.
• Expert Quote: "There's still net optimism, but it would be a declining optimism," said Hal Martin, a policy economist at the Federal Reserve Bank of Cleveland.

In the first year of Trump 2.0, small businesses showed remarkable stability in a rapidly changing environment. But their hopes for the future reached a six-year low.

That's the upshot of the latest Small Business Credit Survey, conducted by the Federal Reserve banks of 12 cities. The survey gauged sentiment at more than 6,500 small businesses, defined as those with fewer than 500 employees, from September through November 2025, asking them about their performance, obstacles, financing and other topics.

In terms of actual revenue and employment growth, the study found that trends remained almost exactly the same as in 2024. The firms' outlook for the future, however, was a different story.

The index for employment expectations — the percentage of the firms anticipating an increase minus the percentage predicting a decrease — declined from 26 in 2024 to 23 in 2025. The drop in the index for revenue expectations, calculated the same way, was even steeper: from 39 in 2024 to 33 in 2025.

In both cases, the latest numbers were the lowest since 2020.

"The index has remained positive, meaning that there's still net optimism, but it would be a declining optimism," Hal Martin, a policy economist at the Federal Reserve Bank of Cleveland and the director of the survey, told American Banker.

Martin emphasized that businesses expecting growth still outnumbered those expecting a contraction, regarding both jobs and revenue. But the decline on both fronts, he said, was still a "useful signal."

Another recent study, conducted by Bank of America, showed similarly mixed results. From November 2025 to January 2026, BofA surveyed about 4,700 small businesses, defined as those with less than $5 million in annual sales revenue.

The report found that overall, these businesses expressed "cautious optimism" about future sales, but also reported elevated concerns over tariffs, inflation, unemployment and interest rates.

"Small business profitability is under pressure as rising costs outpace solid consumer spending," the BofA study said. "Until cost pressures — particularly tariffs and inflationary inputs — ease meaningfully, firms may remain hesitant to hire, invest or expand, even in the face of reasonably supportive consumer fundamentals."

By contrast, small businesses' actual performance over the past two years was quite consistent, according to the regional Fed banks' report. In 2025, the report's index for employment growth — the percentage of businesses reporting growth in their headcount over the past year, minus the percentage reporting a reduction — was 4, exactly the same as in 2024. And the 2025 index for revenue growth, measured the same way, was negative-2, up from negative-3 in 2024.

"The environment has changed a lot compared to the prior survey, and so the steadiness of the business environment is one thing that I think is notable," Martin said.

One major change between 2024 and 2025 involved the cost of foreign products. Last April, President Trump introduced historically high tariffs on nearly 90 countries, making it more expensive for businesses to source materials from abroad.

In 2025, according to the Fed survey, 42% of small businesses said they faced increased costs due to tariffs. (The survey didn't ask the same question the previous year.) The impact was particularly severe for certain sectors, with 69% of retail firms and 62% of manufacturing businesses calling this a challenge.

And yet, in spite of these challenges, small businesses continued to show signs of health. Their demand for borrowing remained steady in 2025, with 38% of firms applying for loans, lines of credit or cash advances — just up from 37% in 2024.

"I think steadiness is the name of the game in most of the statistics that we're sharing, with respect to the credit landscape," Martin said.

Between that and the stable revenue and employment numbers, the data appear to show strong resilience among small businesses, Martin said, even in the face of a turbulent macroeconomic environment.

"It seems to point to the idea that those environmental factors had not affected those phenomena, at least for firms in the aggregate," he said.