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Financial Pressures Challenge Small Business Growth, but the Burden Is Uneven

Financial Pressures Challenge Small Business Growth, but the Burden Is Uneven

August 31, 2026

Kiyadh Burt
Kiyadh Burt

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Small businesses are a critical source of economic opportunity, job creation, and wealth building. However, new findings from the Federal Reserve Banks’ 2025 Small Business Credit Survey (SBCS) show that many businesses are navigating a difficult environment marked by rising costs, uneven access to capital, and increasing reliance on owners’ personal resources.

Rising Costs and Other Financial Challenges Pressure Small Businesses

Rising costs remain one of the most significant challenges facing small businesses. Among employer firms, 73% reported higher costs for goods, services, or wages, while more than four in 10 reported increased costs associated with tariffs. Because some businesses experienced both challenges, these figures overlap. Taken together, 77% of employer firms reported experiencing at least one of these cost pressures, in addition to weak sales, credit availability, uneven cash flow, paying operating expenses, and making payments on debts or interest rates.

The aggregate figures, however, mask significant differences across business owners.1 Difficulty paying operating expenses was the leading financial challenge for Black-owned businesses, reported by 73%, compared with 51% of white-owned firms. Conversely, 73% of white-owned businesses reported increased costs of goods and services as a financial challenge, significantly higher than the 55% of Black-owned firms that reported the same challenge.2 For women-owned businesses, the leading financial challenge was the increased cost of goods and services (71%), and women-owned businesses (52%) outpaced firms owned by men (46%) in reporting uneven cash flow.3

Uneven Access to Capital

Federal Reserve data show strong demand for capital among business owners seeking to sustain or grow their businesses. Women-owned firms apply for financing at nearly the same rate as firms owned by men, while businesses owned by people of color also demonstrate substantial demand for financing. However, important differences emerge in whether businesses ultimately receive the capital they seek.

These differences are evident in approval and denial rates. Black-owned businesses had the lowest percentage of fully approved loans (32%) and the highest rate of loan application denials (36%). Asian-owned businesses had a 39% full approval rate and the lowest loan application denial rate, at 16%. Conversely, white-owned businesses had the highest rate of fully approved loans (57%) and the second lowest rate of loan application denials (17%).4

These disparities can shape whether business owners choose to seek financing at all. For some entrepreneurs, expectations about their likelihood of approval may create an additional barrier before an application is ever submitted. For Black-owned businesses, feeling discouraged (32%) and debt averse (31%) were the highest reported reasons for not applying for financing. By contrast, just 8% of white-owned businesses reported feeling discouraged as a reason for not seeking financing.5 Similarly, women-owned businesses reported higher rates of feeling discouraged (16%) and debt aversion (25%) than businesses owned by men (8% and 14%, respectively). These differences in access to capital may also shape how business owners respond to financial challenges, including the extent to which they must rely on personal resources or other strategies to keep their businesses operating.

Financial Challenges Force Difficult Tradeoffs

As financial pressures persist, small businesses are making difficult tradeoffs to remain operational and financially stable. When businesses encounter financial difficulties, owners frequently use their own resources to keep them operating. Among employer firms experiencing financial challenges, 54% used personal funds, nearly half raised prices (48%), used cash reserves (47%), or reduced costs (47%). Another 36% took on additional debt, 31% downsized operations, and 24% made a late payment or did not make a payment.6

The reliance on personal resources is even greater among businesses without employees. Sixty-four percent of nonemployer firms experiencing financial challenges relied on owners’ personal funds, compared with 54% of employer firms.

The data also reveal clear differences by race and gender. Among firms experiencing financial challenges, 69% of Black-owned businesses used personal funds compared with 51% of White-owned businesses. Hispanic-owned firms also relied on personal funds at a higher rate, 64%, as did Asian-owned firms at 57%. Black-owned firms were also more likely to make a late payment or not pay at all, at 35% compared with 22% of White-owned firms.7

Women-owned firms show a similar pattern. Sixty percent of women-owned businesses experiencing financial challenges used personal funds compared with 51% of firms owned by men.  Women-owned firms were also more likely than firms owned by men to reduce costs (50% compared with 47%) and take on additional debt (39% compared with 35%).8

Small Business Strength Creates Economic Opportunity

All entrepreneurs need affordable, appropriately structured capital that helps them sustain and grow their businesses without putting their household financial security at risk. Yet differences remain in financing outcomes, and some entrepreneurs do not apply at all because they expect to be denied.

These disparities also affect the personal financial stability of business owners. When personal savings repeatedly serve as the financial backstop for a business, resources that could support homeownership, emergency savings, retirement, or intergenerational wealth are instead used to keep the business operating. Ensuring that all entrepreneurs have access to the capital they need can strengthen small businesses, create more economically vibrant communities, and expand opportunities for business owners and their families to build wealth.

Footnotes

  1. “2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey.” 2026. Small Business Credit Survey. Federal Reserve Banks. https://doi.org/10.55350/sbcs-20260303  ↩︎
  2. “2026 Firms in Focus chartbooks on small business data.” 2026. Small Business Credit Survey. Federal Reserve Banks. https://doi.org/10.55350/sbcs-20260402 ↩︎
  3. Id. ↩︎
  4. Id. ↩︎
  5. Id. ↩︎
  6. “2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey.” 2026. Small Business Credit Survey. Federal Reserve Banks. https://doi.org/10.55350/sbcs-20260303  ↩︎
  7. “2026 Firms in Focus chartbooks on small business data.” 2026. Small Business Credit Survey. Federal Reserve Banks. https://doi.org/10.55350/sbcs-20260402  ↩︎
  8. Id. ↩︎
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