Inflation Is Strangling 1-in-4 Small Businesses in America

Inflation, Tariffs, and High Rates Crush Main Street

Small businesses built America’s downtowns and neighborhood corners.

They employ nearly half the private workforce and have always been the first to feel when the economy turns. Right now, that feeling is pain.

A record number of owners say inflation is strangling them.

Tariffs are jacking up the cost of everything they import. And even after three Federal Reserve rate cuts, borrowing money still costs too much.

The numbers tell a story of Main Street under siege, and the owners living it say the math just does not work anymore.

23% Stuck in Survival Mode

A 2025 KeyBank survey of more than 2,000 small business owners found that nearly one in four are stuck in survival mode.

They are not thinking about growth, hiring, or expansion. They are thinking about making it through the month.

Almost half said their 2025 performance fell short of what they expected, and only 46% said they could cover one month of operating expenses if an emergency hit.

The days of planning five years ahead are over for many. Now the horizon is next Friday’s payroll.

Inflation Worry Hits Record High

Inflation has topped the list of small business concerns for 13 straight quarters, according to the MetLife and U.S. Chamber of Commerce Small Business Index.

In early 2025, a record 58% of owners called it their biggest problem, up from just 19% when tracking began in 2021.

Costs for supplies, rent, utilities, and labor have climbed faster than many owners can raise prices. The squeeze hits hardest in the Midwest, where housing inflation alone ran at 5% and fuel costs stayed elevated.

Tariffs Hit Small Importers Hardest

Small businesses account for about 97% of all U.S. companies that import goods, but they lack the buying power and lobbying muscle of big corporations.

When the Trump administration imposed tariffs ranging from 15% to 50% on goods from major trading partners, small importers absorbed the blow.

A Wall Street Journal survey found nearly two-thirds of small business owners said tariffs would hurt their company.

One footwear importer took out a $250,000 loan just to pay his tariff bill on a single container of shoes from India.

Banks Keep Saying No

Big banks approved just 14. 6% of small business loan applications in recent surveys.

That forces owners toward alternative lenders, merchant cash advances, and high-interest online financing that can cost double what a traditional bank loan would.

A Goldman Sachs survey found 81% of owners who applied for financing in the past year found it difficult to access affordable capital.

About half said they had to halt expansion plans, and 41% turned down new business they could not afford to take on.

Rate Cuts Have Not Fixed It

The Federal Reserve cut interest rates three times in 2025, bringing the federal funds rate down to a range of 3. 5% to 3.75% by December.

That is the lowest since 2022, but for small business owners, it still is not enough. More than half of those surveyed said current rates make borrowing unaffordable.

The average SBA loan amount dropped 38% between 2021 and 2025 as higher rates priced out borrowers. Business credit cards have become the most common financing tool, often used just to cover payroll during slow weeks.

Hiring Has Stalled Across Sectors

About 40% of small businesses with at least one employee did not hire anyone in 2025.

The slowdown is especially sharp among the smallest firms, those with fewer than 10 workers, where just 31% added staff.

Employment data from ADP showed five straight months of job losses at businesses with fewer than 50 employees.

When small businesses stop hiring, the ripple hits entire communities. These are the jobs at local restaurants, repair shops, and retail stores that keep neighborhoods running.

8,100 Stores Closed This Year

More than 8,100 stores shut down across the United States in 2025, a 12% jump from the year before. Party City closed all locations, leaving 12,000 workers without jobs, benefits, or severance.

Joann fabric stores vanished entirely. Rite Aid announced it would close every remaining pharmacy. Big Lots shrank from hundreds of locations to just over 200.

Some of these were national chains, but the closures rippled out to Main Street, emptying strip malls and downtown blocks that depended on anchor stores.

Rent Hikes Force Out Longtime Shops

In Brooklyn, more than 30 local restaurants, bars, and shops closed in 2025, many after landlords doubled their rent.

One pizzeria owner reported his monthly rent jumped from $8,000 to $17,500 after a new ownership group bought the building. It is a pattern playing out in cities across the country.

Small businesses sign long leases, invest in their spaces, build customer loyalty over years, and then get priced out when the lease renews.

The economics work for landlords who can wait for a chain tenant. They do not work for the family that built a neighborhood gathering spot.

Only One More Cut Expected in 2026

The Federal Reserve’s December projections showed just one additional quarter-point rate cut expected in 2026.

That means borrowing costs will stay elevated through most of the year.

Some economists, like Mark Zandi at Moody’s Analytics, predict the Fed could move faster if the job market weakens further.

But for now, the central bank is playing it cautious. Small business owners hoping for cheaper credit will have to wait, and many cannot afford to.

Owners Adapt and Push Forward

Despite everything, 40% of small business owners say they are cautiously planning ahead. About 80% feel confident they can make informed decisions even in uncertain times.

Some are cutting costs, renegotiating with suppliers, and finding new ways to serve customers.

Others are leaning on business bankers for advice on cash flow and tax strategy. The owners who survive this will come out tougher.

The question is how many will make it through.

A KeyBank executive called it resilience, the determination to build a foundation for long-term growth even when the short-term looks grim.

This article was created with AI assistance and human editing.

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