New Insights from the 2025 Small Business Credit Survey
The Small Business Credit Survey (SBCS) has been administered nationally since 2016 by the 12 Federal Reserve Banks in collaboration with a network of hundreds of community and business groups throughout the country. The SBCS gathers information from thousands of small-business owners on business conditions and characteristics, credit experiences, and owner demographics. It continues to be the largest national dataset of its kind, and its reports provide awareness of small business challenges and how owners respond to them.
During this webinar, Federal Reserve experts provided an in-depth look at findings from the 2026 Report on Employer Firms. They explored key insights from the 2025 Small Business Credit Survey, including:
This session offered timely, data-driven perspectives for those working directly with small businesses, supporting economic development efforts, or seeking to better understand the current small business landscape. Attendees gained actionable insights into the challenges and opportunities shaping small businesses nationwide.
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Connecting Communities: Unlocking the Voice of Small Businesses: New Insights from the 2025 Small Business Credit Survey (video, 57:33)
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Sergio Galeano
Good afternoon, everyone, and welcome to Connecting Communities. Thanks for joining us for today’s webinar, Unlocking the Voice of Small Business: New Insights from the 2025 Small Business Credit Survey. My name is Sergio Galeano, a community and economic development advisor with the Federal Reserve Bank of Atlanta, and on behalf of Fed Communities, welcome and thanks for joining us.
Across the United States, 99.7%, that’s right, nearly all, many small businesses are considered employer establishments across the United States. Needless to say, small businesses are a critical part of the economy and are pivotal to the health of communities all across the country. Collecting data, analyzing business performance [and] lending trends in other aspects of the small business population, helps us better understand how the economy is doing, but also gauge the health of communities and to better inform a wide range of stakeholders across policy, government, the business sector, of course, nonprofits, education, and more.
Since 2016, the Federal Reserve has worked with hundreds of community and business groups to administer the Small Business Credit Survey. During today’s discussion, speakers will share more about this key survey, how it’s administered and collected, and look at some of the in-depth findings from the most recent report, the 2026 Report on Employer Firms. Among other topics, you’ll hear insights on business finance needs, credit outcomes and challenges, owner demographics and customer dynamics, adoption of AI, and more. To date, the Small Business Credit Survey continues to be the largest national dataset of its kind, and its report provides awareness of small business dynamics, challenges, and also opportunities for countless practitioners and experts across the US.
I’d like to introduce today’s speakers. We have with us all, from the Federal Reserve Bank of Cleveland, Hal Martin. Hal is director of the Small Business Credit Survey and a policy economist in the Cleveland Fed’s Research Department. His current work focuses on small business finance and housing. From the community development team at the Cleveland Fed, we have Ann Marie Wiersch. Ann Marie is a principal advisor with the community development team. She conducts research and analysis on a range of policy issues with a focus on small business credit needs, outcomes, and borrower experiences with fintech lenders. And also from the Cleveland Fed’s community development team, we have Allison Clark. Allison is project manager for the Small Business Credit Survey. She’s responsible for developing and maintaining relationships with internal and external stakeholders to promote the administration, use, and data collection of this ever-growing survey across the country. Now, before we get started with today’s webinar, I did want to go over a few housekeeping items.
First, views expressed during this session are those of the speakers and are intended for informational purposes only. They do not necessarily represent the views of the Fed Communities platform or the Federal Reserve System. To make this webinar as smooth as possible for all our audience members, all microphones have been muted, but please make your voice be heard. Please make ample use of the Q&A function. If you came in with a burning question, feel free to drop it in right now, and you can use that feature throughout the webinar. We promise to get to as many questions as we can, either in the chat or in the live Q&A portion later.
You can also keep the conversation going online, wherever you get social media. You can use the #connectingcommunities, and while you’re at it, visit fedcommunities.org for a variety of resources and materials, similar to today’s webinar, but also covering a large expanse of community development topics.
Finally, this session will be recorded. The presentation, video, and podcast that comes from it will be available on fedcommunities.org about two weeks after the webinar closes. All right, everyone. Thanks, again, for being here.
I’d now like to transition to the presentation portion of the webinar. As I invite Allison to join us on camera, we invite everyone in the audience to participate in the first of three polling questions we’d like to ask. You should have seen by now a prompt coming up on your Zoom platform. The first question for everyone is, which best describes your connection to small businesses? Now, for this part of the presentation, I now pass it to Allison. She’ll cover an overview of the survey, followed by Hal and Ann Marie, [who] will both dive deeper into the insights and findings from the most recent report. To the three of you, thank you so much for sharing your time and expertise with us. Allison, the mic is yours.
Allison Clark
Thank you, Sergio. Today’s webinar covers findings from a Federal Reserve System report released last month. The 2026 Report on Employer Firms provides findings and analysis from the 2025 Small Business Credit Survey. Next slide, please. The Small Business Credit Survey, or SBCS, is an annual survey conducted through a partnership between the 12 Federal Reserve Banks and a national network of more than 100 business and civic organizations. I’m eager to see, when we close the poll, how many of you represent those organizations and other partners that we have. Let’s see. So, a large number of you may already be familiar with the SBCS. We work with nonprofits frequently, government agencies. We have a number of bankers in the audience as well, and a few small business owners. Great. Good to see you all. Thanks for joining us today. Every year, the survey is open to all business owners in the US states and territories. We primarily reach respondents through partner organizations, who share the survey with their small business contacts.
We also contact past respondents and other small businesses directly by mail. As you see on the slide, we weigh the survey data each year after data collection, so it is representative of all small firms in the United States. The 2025 survey was fielded from September through November 2025. It was an online survey offered in both English and Spanish. In addition to standard questions about business conditions, debt, and financing experiences, the 2025 questionnaire included special questions about customers and trade and artificial intelligence, as well as questions pertaining to firms impacted by natural disasters. This presentation focuses on the responses from the more than 6,500 employer firms that responded to the 2025 survey. As I mentioned, the findings presented here are drawn from the 2026 report on employer firms released on March 3rd, and they’re available at fedsmallbusiness.org. I’ll now turn it over to Hal, who will share the report findings, followed by Ann Marie.
Hal Martin
Thank you very much, Allison. As Allison mentioned, the SBCS asks questions not only about small business credit experiences, but in other areas as well, so let’s begin by looking at what we know about business performance and operations. If we can move to the next slide. That’ll be the first of things we talk about, so we can roll forward one more to slide eight. To start off, each year, we ask firms whether revenue and employment has increased, decreased, or remained the same over the prior 12 months. I’ll mention that those 12 months are the 12 months preceding sometime between September and November when firms take the survey.
On this slide, we see that performance indexes or the share reporting increases, less those reporting decreases. Note that revenue performance [is] in blue and employment performance is in orange. Both revenue and employment growth were relatively stable in the years leading up to the pandemic, when the levels declined.
Both measures recovered somewhat, starting in 2021, and in recent years they’ve stabilized, but they remain below pre-pandemic levels. The revenue growth index is negative for the second consecutive year, meaning that more firms said their revenues declined than increased in the prior 12 months.
On slide 9, we’ll show you what we learned when we asked firms about their expectations for revenue and employment growth over the coming 12 months, following the time of the survey. Shown here, the revenue and employment expectation indexes are, again, in blue and orange, show a similar pandemic- era dip and more recent stability. Of note, the revenue expectation index fell six points, and the employment expectations fell three points compared to the prior year. Now, before we look at survey data on the challenges firms experience, we wanted to ask you the question, What do you think are the biggest challenges facing small businesses today? We listed some common ones. This is similar to the way that we ask firms in the survey.
We are asking you to rank the top three challenges that you see for firms today. So, we’ll take a moment to let those answers trickle in. I’m going to hold the slides here, because I don’t want to bias you in showing you the results of the survey itself. I will note that the questions we’ve given here are a combination of financial and operational challenges. What we’re going to look at first in just a moment are the operational challenges, which we draw from a fuller set of questions, and then the financial challenges that we ask firms about, which are also drawn from a fuller set of questions. If I can ask our poll monitor to see if we have enough to close the poll in just a moment, that’d be great. I’ll be happy to share back with you all what you tell us, and then I’ll share with you what 6,500 or so businesses told us. All right. We find, from you all, that the most common challenge from this list is increased costs. That’s what ranks number one. It looks like number two is probably hiring qualified staff.
I think the distribution is relatively well spread across all three of these challenges. All right. This is very helpful. Let’s go ahead to the next slide, and we’ll show you what the businesses tell us about their most common financial and operational challenges. As I mentioned, starting with operational challenges, the most common response that we get is that businesses find challenges reaching customers and growing sales, followed by hiring and retaining qualified staff. Most businesses, around 9 in 10, experienced at least one operational challenge in 2025, and that’s similar to the recent years that we’ve had this question in the survey. The share, reporting most of these challenges did not change much year over year, though the share with hiring challenges has declined somewhat, from 51% in 2024 to 46% in 2025. On slide 11, we will see the businesses’ financial challenges. Again, businesses can select all that apply to them. Here we see that 94% of small businesses experienced at least one financial challenge in 2025.
A majority of firms reported challenges with rising costs, and 77% experienced challenges either with increased costs of goods, services, or wages, or with increased costs associated with tariffs. Many that report challenges with tariffs are also reporting a challenge with the increased costs of goods, services, and/or wages. We further break those results out on slide 12, where we show you the most common financial challenges by industry. I’ll take a moment and let you digest this. Here on, we show you some of the major industries that we track, and in the first column, the most common financial challenge, followed by the second- and third-most common financial challenges within these industries. Across all industries, the most common financial challenge was the increased cost of goods, services, and/or wages. Increased costs associated with tariffs was the second-most common financial challenge among firms in retail and manufacturing. Those were at 69% of firms reporting and 62% of firms reporting, respectively.
In some of the other industries, like leisure and hospitality and healthcare and education, the second-most common financial challenge was paying operating expenses. The next chart breaks out the actions that small businesses took in response to those financial challenges. We asked businesses that experienced financial challenges, What actions did you take? We’ll show you that breakout in the next slide. Here we see the most common action was the use of the owner’s personal funds. Fifty-four percent of small businesses responded that they responded to financial challenges in that way, followed by businesses raising prices that they charge for 48% of firms. Others relied on cash reserves or took steps to reduce their costs. While we don’t show it here, actions varied by the type of business. For example, newer and smaller firms were more likely than others to rely on their owner’s personal funds. Industry sectors, like retail, manufacturing, and leisure and hospitality, were more likely than others to say that they raised prices.
On the next slide, we’ll see one of the special topic modules that we asked, the challenges relating to trade policy and trade experiences. Earlier, we asked firms whether or not they had specific challenges with increased costs related to tariffs. Here, we’re simply focusing on the costs of their inputs and their response to those changes in costs. On the leftmost chart, we see that nearly half of firms reported that they sourced at least some of their inputs from outside the United States in 2024, and 14% said that they did so for more than half of their inputs. While half do not rely substantially on inputs from outside the US, about half have at least some exposure to inputs from outside the US. We ask the half that do, what the changes in prices were to those inputs, from 2024 into 2025? That’s what’s shown in the middle chart. Here, we see that a large majority, 84% of firms, reported international input prices increased.
We asked of those who said that the input prices increased, on the right-hand chart, what actions they took when they were experiencing those cost increases on internationally sourced inputs? Most firms told us that they passed the costs on to customers, and they absorbed at least some of the cost internally. That’s 76% and 60%, respectively. Less-frequent responses included changing suppliers or relocating production to the US. In the next slide, we’ll show you what the firms told us about their international sales. The leftmost chart shows that just 1 in 5 firms reported that they made sales to international customers in 2024. Of those that had sales to international customers, the chart on the right shows their expectations for how their full year 2025 international sales would compare to 2024. We see that most firms expected a decrease, 40%, or no change, 37%, [which] was the next most common response, about their sales to international customers by the end of 2025. And 16% expected an increase. Now I’d like to turn things over to Ann Marie Wiersch to share what we learned about debt and financing. Ann Marie?
Ann Marie Wiersch
All right. Thanks, Hal. Let’s advance forward to slide 17, please. All right, so here we’ll take a look at small firms’ outstanding debt. So, starting at the top of the chart on the left, we see that 31% of employer firms were carrying no debt at the time of the survey. 32% had less than $100,000 outstanding, and 38% had more than $100,000. These levels have been steady for the last few years, but the share with more than $100,000 outstanding [debt] remains elevated compared to pre-pandemic years. The chart on the right shows the ways debt holders secured their debt through collateral and guarantees. In practice, lenders often require that financing be secured in multiple ways, including commitments from the business owner. These findings demonstrate the interconnectedness of business finances with the owner’s personal finances, as 59% secured their debt with a personal guarantee, and 38% used personal assets—for example, pledging a home or retirement savings.
As noted in the box, the share that secured debt with personal assets was 7 percentage points higher than it was in the 2019 survey. The chart on slide 18 shows the types of products businesses reported that they regularly use or carry a balance on. Credit cards, loans, and lines of credit were the most common products used by small businesses. As the box shows, businesses use both personal and business credit cards to pay their business expenses. The survey finds that reliance on external financing is up from pre-pandemic years. In this survey, 86% of firms said they used one or more of the products shown, which is a 6-percentage-point increase from the 2019 survey. Next, on slide 19, we had data on small firms’ applications for new financing in the 12 months prior to the survey. As indicated in the chart on the left, 60% of small businesses in the 2025 SBCS applied for some type of financing, which would include loans, lines of credit, merchant cash advances, credit cards, leases, trade credit, and factoring.
The most common reasons firms applied for financing was to obtain funds for their operating expenses or for business expansion. The chart on the right shows overall financing received. As indicated in green, 42% of applicants received all of the financing that they applied for. The remaining 58% got some, most, or none of the amount that they were seeking. The survey finds that, of these applicants, about two thirds said their financing applications were not approved, while others said they had pending applications or were approved for funds they decided not to take.
Slide 20 provides an overview of demand for credit by product type. What we see here is essentially a breakout of the first chart on the prior slide, with the 40% who did not apply shown again here in gray. The 60% that did apply are accounted for in the blue bars, which do add up to more than 60% because some firms applied for more than one product.
The top of this chart shows a combined category for loans, lines of credit, and merchant cash advances. In order to provide context for the next series of slides, which draw from the firm’s more detailed questions on application experiences for these three product types, credit cards and trade credit were also among the top products sought. I’ll note here that the survey finds a considerable increase in the last several years in applications for credit cards. In 2019, for example, just 12% of employer firms said they applied for a credit card in the prior 12 months. Slide 21 provides perspective on how the application rate is trending over time. We’re looking here at the share of firms that applied for a loan, line of credit, or merchant cash advance in each survey year since 2018. The drop in the application rate in 2020 coincides with the availability of pandemic support programs like PPP and IDEL, which are excluded from this chart, and the uptick in 2022 coincides with the wind down of these programs.
Then, [in] 2023, the application rate has returned to pre-pandemic levels and has been holding steady. Slide 22 takes a deeper look at those loan, line of credit, and merchant cash advance applications. Here we see application trends by lender type. Now, there’s a lot going on in this chart, so I’ll start with the legend on the right. These are the lender categories for which the SBCS collects application data. First, [are] large and small banks, which are split at 10 billion in assets. Then, we have non-bank lenders. Online lenders, also known as fintech lenders and finance companies, which include auto finance, equipment dealers, insurance companies, and similar lenders. Finally, credit unions and community development financial institutions, or CDFIs. Looking now at the data, we see that, consistent with past years, firms in the 2025 survey applied for financing most often at large banks. Those are shown in green.
Below that, we see some over-time changes. In the past 5 years, the survey has found a decline of 11 percentage points in the small bank application rate and a 12-percentage-point increase in the online lender application rate. The application rates at the other lenders have remained mostly flat over time. Slide 23 looks at why applicants sought financing at the sources they did. For large and small bank applicants, the relationships firms have with their banks was the top factor in their decision of where to apply.
Past research suggests that relationships are a proxy for other factors, as prior experiences with the lender can help shape future expectations about the speed of the application process, likelihood of approval, and borrowing costs, which also registered as top factors for bank applicants. Conversely, among firms that applied at online lenders, nearly two-thirds said their top priority was speed of the decision or funding.
About half said their chance of being funded was a top factor. Thirty-eight percent chose to apply at an online lender because they did not require collateral. Not shown on this slide are the 28% of applicants that said they applied at an online lender because they had been denied at other lenders. The chart on slide 24 shows how financing approval rates have changed over time. Specifically, it shows the outcomes for applicants that sought loans, lines of credit, and merchant cash advances, with the share fully approved in green, partially approved in yellow, and denied shown in red. The survey has found little movement in outcomes over the last several years. The most pronounced over-time change since pre-pandemic years is the share of applicants fully approved, which now stands at 52%, somewhat lower than the readings of 58 [percent] and 62% in 2018 and 2019. That decline in the share fully approved is offset by an increase in the share of firms that were partially approved.
Slide 25 breaks out approvals from the 2025 survey by type of lender. Applicants at small banks were the most likely to be fully approved, followed by finance companies, credit unions, and large banks. Online lender and CDFI applicants were least likely to be fully approved, which is not entirely unexpected, given that these lenders are more likely to serve higher-risk businesses who may face challenges obtaining approval at most sources.
Slide 26 presents data from a new question in the SBCS about experiences of borrowers. That is, those applicants that were approved and accepted financing offered by their lender. This chart shows firms’ experiences with borrowing costs relative to their expectations at the time they accepted the approved financing. Starting at the top of the chart, we see 60% of firms that borrowed from online lenders reported that their borrowing costs were higher than they had expected.
Among finance company borrowers, 44% said their costs were higher than they expected, though 13% of these borrowers also reported lower-than-expected costs. At banks and credit unions, a majority of borrowers said their costs were about in line with their expectations. Still, roughly a third of these borrowers did report that their costs were higher.
Slide 27 provides a different perspective on applicants’ experiences. Here, we’re looking at satisfaction with lenders for applicants that were approved for some of the financing they sought. Credit union and small bank applicants were most satisfied with their experiences, followed by large bank and finance company applicants. As the survey has found in prior years, online lender applicants were [the] least satisfied. Net satisfaction readings were up a bit in the 2025 survey compared to last year for each of the primary lender categories, except for small banks, which declined slightly year over year.
Slide 28 provides some context for firms’ satisfaction with their lenders. So overall, applicants’ most commonly reported challenge was high interest rates. A relatively high share of online lender applicants, represented by the gray bars, also had challenges with unfavorable repayment terms. Moving across the chart, we see the challenges at large and small banks—those are the green and orange bars—are higher than at the non-banks for difficulty at the application process, unclear approval criteria, and [a] long wait for decision or funding. Then, at the far right of the chart, we see the share of applicants with no challenges. Again, online lender applicants were the least likely to say they had no challenges with their experiences.
Now I’ll turn the program back over to Hal, who will share survey findings on small businesses’ use of artificial intelligence.
Hal Martin
Thank you, Ann Marie. Now, before we look at that, I do want to ask our last polling question. We wanted to ask all of you, Which best describes the way small businesses you interact with feel about AI? Feel free to check all that apply. We’ve offered you the option to say they’re “enthusiastic,” they’re “cautious but interested,” they’re “confused,” “indifferent,” or “concerned.” Curious to see what you all are seeing in the AI adoption and use space. One thing I’ll mention, as we’re coming into this, the polling question, is that for the questions that we present on AI, the SBCS uses a very broad definition of AI. So, we were inclusive of any use by the business or use of its employees for work purposes. That means that respondents were instructed to think about standalone applications of AI and features within software they already might be using.
This might include internet use of AI, et cetera. So, when I present the results in just a moment of our SBCS, it’s going to be along those lines, but first, I’m going to tell you a little bit about what we see in what you see. The top response that you gave us is “cautious but interested,” and a relatively even mix between “concerned” [and] “confused,” “enthusiastic” stands at 18%, and “indifferent” at 12%. I think that these perspectives are probably fairly similarly reflected, although we did not ask this question of our respondents. I’d be curious to see if you see reflections of this distribution in the questions that we do ask. So with that, let’s share some of the findings we had from our artificial intelligence module. First up, we asked firms whether or not they were using AI, planned to use AI, or did not have plans to use AI. This chart shows the data on that use.
Forty-six percent of firms were using AI at the time of the survey, and 48% were not. Those were split between those that had plans to use AI within the next 12 months, and those that had no plans to adopt AI at about a third of respondents, and then an additional 6% were unsure. If we can move to the next slide, we’ll tell you more about those that have adopted AI according to their responses. On the left, we show that the level of AI adoption, and we gave this to them in a few different ways. So about half of firms using AI said they were experimenting with AI tools. That included things like testing tools or running pilots. Another 44% said that they partially integrated AI into some of their business processes, and then 7% told us that they had fully integrated AI into their business functions.
On the right, we see how important the type of adoption that firms have engaged in is to their core goods and services. Just over one in five firms consider it very important to their core goods and services, and 42% consider it just somewhat important, 37% not important. So, a range [in the] level of importance that firms identify their current use of AI with. If we can move to the next slide, we’ll see the different types of processes and tasks that firms tell us that they’re using AI for. Now, once again, firms could check all that apply in this response, and I’ll go over some of the options that we provided. The top response that we saw firms give was writing or marketing, by far the most common task. That included things like working on documents, ads, logos, or social media.
That’s followed by individual productivity, which included examples like note-taking, summarizing, or scheduling, and by planning or analysis, which included tasks like research, forecasting, or business strategy. Unsurprisingly, use of the AI for different tasks varies by industry. So for example, individual productivity was reported by 67% of firms in professional services and real estate, but only 46% in retail. These are not results that we’re showing on this slide, but things that we can find in our data appendix. Coding or coding assistance was highest at 31% for professional services in real estate, and lowest at 11 [percent] to 13% across a variety of other industries like leisure and hospitality, healthcare and education, and business support and consumer services.
If we can move to the next slide, we will see a chart that shows the self-reported changes at businesses resulting from the use of AI. From the frame of reference that those that are beginning to use AI, what has it changed at their firm in these dimensions? The left set focuses on performance metrics, sales, productivity, and quality of goods and services, while the right focuses on changes in costs, spending on outside services, and labor. Very few firms report any decrease in performance metrics, with over two-thirds reporting increases in productivity. Only about one in six firms reported reduced costs as a result of using AI, with a large majority reporting no changing costs. Now, those that report changes to labor costs, shown in blue and orange on the far-left bar, that’s the 16% and the 7% respectively, they were asked specifically about changes to the number of employees.
Most of those had not added or cut staff. Ten percent said they’d increased the number of employees because of AI, and 11% said they’d cut staff. On the next chart, we’ll see the comparison between some of the challenges that firms have experienced, either those who have adopted AI or those that are planning to adopt AI in the next 12 months. Firms already using AI reported challenges with accuracy and misinformation at almost twice the rate as those who were just in the planning stage. On the other hand, challenges with adapting tools to meet business needs, time to implement and train employees, and cost were most common among firms planning to use AI versus those that are already using it.
Note that the changes reported by the firms planning to use AI may be [either] anticipated or experienced challenges, depending on where they are in the process. The final chart we want to feature here shows some of the reasons that firms do not plan to use AI. A majority of these firms reported that AI was not applicable to their business, at 56%, while just under a third reported that they preferred not to use AI. Those are the findings that we had from our questions in the AI module, and that concludes the primary findings that we’re sharing with you today, but I’d like to welcome Sergio back to the stage and my fellow panelists as well. Sergio, will you take us through the rest of the program?
Sergio Galeano
Absolutely. Hal, thank you so much. Ann Marie, please join us. Thank you both, along with Allison, for that excellent presentation. I’m always amazed at the scale and breadth of the small business credit survey. We have nearly 11,700 small businesses participating over a 3-month window. Let’s just say your calendar has been quite busy these past couple months. Congratulations, again, to you and the team for the recent release of the 2026 Report on Employer Firms. As we kick off a short discussion, I’d now like to remind the audience [that] I have a few questions here in the Q&A. You’ve heard from Allison, Hal, and Ann Maire a lot of insights across very different topics of small business. Please, if you’ve got a question or comment, please feel free to drop it in the chat. We’ll try to get it in the time allocated for this Q&A.
Now, before we turn over to the audience, I wanted to ask, it’s been nearly a decade, about nine or ten years of collection and reporting, and this survey has grown a lot, both in the scale of the network, but also the kinds of questions. Over time, you’ve also increased the ability of using this to have impact and providing use cases for different kinds of stakeholders. Most of this survey shows changes over the past year and, in some cases, over several years, but I wanted to ask you both, how have business challenges changed in the past few years, and is there any indication of how those challenges may evolve? I ask that, if I can, [because] tariffs are always a risk depending on the global market. Right now, a particularly acute issue, AI, [is] an example of a newer issue that is likely here to stay, but [presents] a new dimension to understanding how it’s impacting small businesses. Do the past couple of years give you any indication of what’s to come in new challenges and opportunities?
Ann Marie Wiersch
Well, I’ll just start off by saying that understanding business challenges is a really important part of what we do. It gives us insights on how firms may fare as they apply for credit and how they’re managing the finances of their operations. As you noted, Sergio, there have been a lot of changes in business challenges. We’ve noticed, really, since the pandemic, that was a point where we saw just really significant changes in both the challenges firms were facing and how they were coping with those challenges. The challenges questions in our survey do incorporate some changes over time, just to reflect differences in business conditions. We see things like where we have some steadiness and questions, for example, in operational challenges over the past several years.
The issues that were most significant for businesses in the years in the directly post-pandemic years, we saw a lot of supply-chain issues and hiring issues that firms were facing. Looking at the most recent survey, those that have dropped off, especially supply-chain challenges have dropped off considerably, so we do see that movement in the different types of challenges, the financial challenges. We have had some shifts in those questions, really just to reflect the experiences of the business owners, but we do consistently see that firms face challenges paying their expenses, especially as costs get higher. Now, the other part of your question is a little tricky, trying to look ahead and think about what this tells us about the challenges that businesses will face in the future. I think that, if I’ve learned anything in my years of working on small business issues for the last decade and a half, it’s really that it’s hard to know what’s around the next corner.
But fundamentally, we see business owners are optimistic about their prospects for their firms and are really just looking for different ways that they can find advantages that will help keep their businesses on solid footing. Whether it be something like adopting new technology, automation, or AI, sometimes we see that those types of things are helpful to businesses. It’s also, for some, it’s being able to access credit that could get them through challenges with cashflow issues and the like, so it’s always tricky for us to try and forecast ahead. We don’t normally, but when we ask businesses, they tell us how they see things going in the future. The survey, as Hal said, was a little less optimistic in terms of future growth prospects.
Sergio Galeano
Thanks for that. I could see it’s just as important to track the sort of evergreen topics, like credit lending and business performance, as it is a sort of evolving dynamic set of challenges that comes up, and I think that’s where the intrigue and interest is, and I think it really sustains the rationale for having a survey like this for those interesting insights. I wanted to ask one more, because I really enjoyed this special section on AI. We’re all talking about it, and there’s been a lot of talk about, Can small businesses access and implement AI at the same scale and capacity as larger businesses with larger staff and larger backend resources?
But I did notice how, in the last portion of your presentation, that the share of small businesses in the 2026 report, 46% of businesses [are] using AI. You mentioned that you do use a broad definition of AI, and one could ask, “Well, when a business uses AI, to what degree is it integrated in everyday practices, or is it more peripheral to some of their core work?” But 46% is what we see in the report, and that is a bit higher than some other reports that I’ve seen. Do you have a sense of why that is in this specific cohort, and does any of the weighting or methodology point us in a direction to understand that indicator?
Hal Martin
That’s a great question. I agree. I think it stands out, in terms of the level at which we see firms adopting AI in the data that we’re collecting here, relative to other sources. I think part of what you’re pointing back to is exactly that. We pointed a very broad brush on what adopting AI might mean to a firm, and I think that’s reflective, in large part, [of] the types of tools that are in the marketplace and the tasks that firms might be using AI for.
I think that’s, on some level, that’s why we have these second-order questions to get to the level and depth of integration that firms have of their integration with AI, because we know a lot of our firms are sole proprietors. The ones that have employees are the ones that are the focus of this report, but they may still have very few employees and employees may be using AI fairly peripherally, so I think because we’re [in] early days in understanding exactly what the adoption models might be, and because small firms are so diverse in the types of activities they do, we want it to be very broad in our scope for how we think about what AI use might mean, so that’s why we capture such an enveloping and encompassing definition of using AI.
Sergio Galeano
No, that’s really helpful. Just like economists, policy and macro-economists in our research department like yours, it’s still early and everyone’s figuring out a new way of tracking what are the implications for workers and employers. We’re seeing that, if not uncertainty, just kind of evolving trends in a survey like this. Thank you, Hal. I want to make time for some Q&A for the audience. We’ve got a long list. I think some of these I can try to combine. Some of these are smaller answers, some of them larger with more complexities, jumping around different parts of the presentation, but let’s jump in and have some fun. We’ve got another 10 minutes here. Two questions that came in early. One is, do you ask about defaults? Separately, did you see an increase in the percentage of debt secured with future sales from 2019, about 5, 7 years ago, to the latest survey?
Ann Marie Wiersch
I can take both of those questions. We do not ask directly about defaults, but when we ask about response to financial challenges, one of the options that respondents can choose is “made a late payment” or “did not pay.” That’s the closest indicator that we have, and that was at about 24% in the most recent survey, so it’s something of an indicator of some challenges making payments on debt. That’s not too out of line with past survey years, though there’s some.
I would caution against trying to compare exactly over time, given some changes in that question. The other question was about debt secured with future sales, and that is something that we’ve seen a small uptick in, that I went back several years on that one, and it looks like about 8% of businesses pre-pandemic had said that they secured their debt with future sales. This would be for something like a merchant cash advance. It’s a very common arrangement for that product, and so that’s gone up slightly to about 10% in the most recent survey. We’ve seen a similar, small uptick, but it is perceptible in the use of merchant cash advances as well by small businesses.
Sergio Galeano
Thanks, Ann Marie. Well, let’s jump in into a new batch here. A couple of questions are about just disaggregated data. One question asks, Do you have some of the credit debt info broken down by demographics of business owners? I believe you do in some of the chart-books. And related to breaking out data, in that same bucket of questions is a question on, Do you have breakout of applications for lines of credit and amounts applied for? So, demographics and breakout by lines of credit and amounts applied for.
Hal Martin
Sure. Let me take the overall demographic question. Ann Marie, I might ask you, because I think you know some of the credit stuff, a finer detail in terms of what’s in our appendix. I think the question about the demographics, let me make a plug for another product that we put out called Firms in Focus. This was released just last week, and this is a series of our data, broken out specifically by firm demographics. We put out chartbooks that share the results, not just in the aggregate here, but also by characteristics of the firm, as well as characteristics of the owners.
We’ll see it by age of firm, revenue size of firm, the number of employees that firms have, things like that. Then, also by their credit risk, by the race and ethnicity, age of the primary owner, and some of these demographic characteristics. So, it’s a very rich set of data. We don’t memorize all those numbers off the top of our heads, but we work through some of that data as we think about what additional analytical insights might be worth pulling forward and sharing over the course of the year. It’s all publicly available at those aggregations, and so I would encourage folks to check those out. Ann Marie, would you like to comment on how far we drill down on lines of credit?
Ann Marie Wiersch
Sure. I guess, just at a high level for applications for lines of credit, we see that about 24% of small businesses, overall, had applied for a line of credit in the last 12 months. We do have some product experience breakdowns. For example, we break out the share that were approved for a business line of credit. It was 45% fully approved, 31% partially approved, and 24% were denied for the line of credit. So, the product detail, there is some that is in the report. The appendix of the report has some detail as well, and you can also see that breakdown. Where we have a sufficient number of responses—in those Firms in Focus chartbooks that Hal was mentioning—if you’re interested in the breakout of applications for lines of credit, for example, by different business demographics, you can find that there as well.
Sergio Galeano
That’s helpful. Before I get to the next one, let just point folk to the chartbooks, and more data that Hal and AnnMarie shared. A question from Myung Lee: Are these data sets available by cities or counties? Yes, they have geographic data. There were other questions that I think we can refer to some of those special reports. I just want to clarify how, Ann Marie, you both said that the data’s available to download. It’s public, but a question from Katie: Is the survey microdata available? To what point are these Excel files or can someone get in there and have some more fun with the microdata?
Hal Martin
It’s a great question. As a researcher, I appreciate the application of the word fun to microdata. We are in the process of evaluating how to release microdata. We are not there yet. So there is a list of interested folks that you can add yourself to by going to our website, fedsmallbusiness.org, and putting your email in the box. But at the moment, we release our disclosable aggregates, but those aggregates do go down a fair distance, again, in the demographic breakouts that we shared. We also have a handful of states and MSAs where we have enough data that we can disclose responsibly results. And so, we do that. They change from year to year, because this is a convenience sample, and so we work hard to get data from across the country, but some areas are able to show up more strongly than others in terms of their response rates, and that’s what determines whether or not we’re able to pull together a chartbook for a specific geographic region.
Sergio Galeano
That’s helpful. Thank you. Well, these are great detailed questions from the audience. Thank you so much. Let’s step back and just appreciate the time you all spent really digging into this data and ask each of you a more straightforward, simple question from Chris Lash. What was the finding in this year’s survey that most surprised you? You’ve both been working on this for a long time, whether helping implement this from the beginning or spending more recent years, but what stood out recently or that you found the most intriguing? Ann Marie, we’ll start with you.
Ann Marie Wiersch
I think, as someone who’s worked on this survey for quite a few years, I’m always looking at the changes in the findings over time. I think one of the biggest year-over-year changes, I think, that stands out to me is the decline in optimism from small businesses with respect to their expectations for revenue and employment growth. Small businesses are just an optimistic bunch by nature. To take the risk of starting a business and maintaining a business, really, it requires a level of optimism. I think that the dip in the index for revenue growth in particular, I think, stood out as maybe not so much surprising, but as one of the things that definitely caught my attention. But it is interesting to see the resilience in businesses as well, with respect to their revenues are holding and they do, at least up until the point of the survey, and they are able to get credit at about the same rate, maybe not quite as much. Really, the use of AI, I think, is the other thing that stood out to me. Hal, I’ll pass it over to you and to see what yours were.
Hal Martin
Yeah. My framing is just a little bit different, but overlapping. I think that the thing that stands out to me, as I talk to more and more people in the small business space, is, again, just how diverse small businesses are. Clearly they’re the majority of establishments. They’re the majority of businesses by count, but they are so diverse in their size, the levels of complexity, and the areas they work in. Two places I think that stand out are in the topical questions that we asked this year. I don’t think I expected the share of businesses that had inputs sourced internationally to have such a wide distribution, and we have businesses that are very, very exposed to international trade. And then of course we have some that are not exposed at all, but it really runs the gamut.
I think that emphasizes we’re not just talking about mainstream retailers as what we think of as small businesses, right? We’re talking about manufacturers. We are talking about professional service providers. We’re talking about restaurants and retailers as well, and so there’s a variety of business models, business products, and services that are being produced in small businesses. That shows up, again, in the AI. Again, we had an expansive definition, but we’re getting a sense that small businesses are embracing AI in a variety of ways and at a variety of scales, from not looking at it at all, “I have a business that it’s not applicable to,” to “We have fully integrated it into our production of our core goods and services.” So I think that the gamut is what’s really interesting to me.
Sergio Galeano
Yeah. The data is rich. Great to hear your interest in this ongoing survey, and thank you for that. I wanted to, actually, ask a last question to close out this portion and invite Allison back up, because we’ve had a great hour to learn about this survey. We’ve learned about some of the key findings, and we have a large, diverse set of stakeholders in the audience. Allison, as she mentioned earlier at the start of the survey, this survey was made possible by partner organizations, like nonprofits that serve small businesses, not just the small businesses themselves. We saw, from the poll, how interested people are and the different perspectives they are. I wanted to ask Allison if she can come on camera and join us. Hey there, Allison. Had [to] close your window. If someone here in the audience wanted to participate in the survey or had friends and colleagues in the space who they wanted to refer to the survey to, how could folks take that first step and join in the partnership?
Allison Clark
Definitely. We do have a few slides about this as well, so we’ll wait for those slides to pop back up. And thank you for giving the plug to our network connection, to the many organizations it takes to field a survey. As it says on the slide, distribution partners are the number one way that the survey reaches respondents. Each fall, our partners commit to marketing the survey through their small business networks. In support of those partners’ efforts, the Fed wants to provide reciprocal value to them for their investment in the distribution. On the next slide, I’ll share a little bit more about that. So many organizations choose to partner with the SBCS because they can receive a custom partner report with details on the current state of small businesses in their network.
That benchmarks the data from their sample to the national employer sample. It does require a minimum of 50 respondents in a network to receive the report, but we do provide marketing materials and tips on how to do that. Partners can use their data to inform the small business programming that they may offer within their network. The next bullet is, they support advocacy initiatives, both internally to their organization and through the public reports. Many organizations that are not formally partners still use the data that they help generate in their own advocacy networks. They amplify the voices of small businesses in their communities and around the country. They provide policymakers, lenders, and the Fed with data that they need to make decisions. They receive recognition as a Federal Reserve partner on our website. And participation is free!
So, the only cost to participate is your time to recruit participants. As I said, we provide all the marketing materials you need when the survey is open. One more slide here. This is just covering eligibility. Organizations that are eligible to partner for survey distribution include nonprofits, state or local governments, and non-bank CDFIs that provide technical assistance. If you aren’t already signed on, you can confirm your interest in partnering by working with your regional Reserve Bank staff or visiting our “become a partner” page on fedsmallbusiness.org/partnership. I’ll turn it back over to you, Sergio, for wrapping up notes and concluding today’s session.
Sergio Galeano
Thank you so much. Well, with that, we’re now approaching the end of our session, like Allison said. I just want to reiterate what the three of our presenters said today, a lot of rich data. We appreciate all the interest in using the data and partnering. Please visit fedsmallbusiness.org to learn more. If you are continuing to be intrigued by some of the findings and what you heard from our experts today, what Hal mentioned, there are these Firms in Focus chartbooks. It’s kind of a chance to really dive deeper into a bunch of several categories of deeper information across business and owner characteristics, geographic location, like someone asked, including [data] at the state and metropolitan statistical area. You’ll be able to compare findings across different types of businesses. For example, startups to long-established and larger firms, urban and rural firms, and firms across different industries, and so on.
Sergio Galeano:
Thank you so much. Well, with that, we’re now approaching the end of our session, like Allison said. I just want to reiterate what the three of our presenters said today, a lot of rich data. We appreciate all the interest in using the data and partnering. Please visit fedsmallbusiness.org to learn more. If you are continuing to be intrigued by some of the findings and what you heard from our experts today, what Hal mentioned, there are these Firms in Focus chartbooks. It’s kind of a chance to really dive deeper into a bunch of several categories of deeper information across business and owner characteristics, geographic location, like someone asked, including [data] at the state and metropolitan statistical area. You’ll be able to compare findings across different types of businesses. For example, startups to long-established and larger firms, urban and rural firms, and firms across different industries, and so on.
On behalf of Fed Communities, I’d like to extend a sincere thank you to Hal, Ann Marie, and Allison for sharing their time and expertise with us today and to tell us more about the Small Business Credit Survey. To our audience, I hope that the past hour left you with something more, a nugget of wisdom, insight, or a motivation to learn more from the small business credit survey.
Now, before we do officially and formally close the session for today, we’re going to send out a survey, different from the survey we just talked about. It’s a post-event survey here for Fed Communities. It’s just great to hear your feedback on how to make these webinars even more impactful for you and improve over time. Please visit fedcommunities.org to access all the materials from this webinar, which will be released in about two weeks, but also all the materials and documents and recordings from past webinars, and also articles and reports on a range of community development topics.
Please, whether you’re on LinkedIn, X, Instagram, or Facebook, follow us on social media and don’t forget to subscribe to our Fed Communities newsletter. Today, we spent a great [deal of] time learning about the challenges, gaps, opportunities, and dynamics of the small business space and the credit lending space. Next month, we’re going to transition [to] talking about banking access for individuals and households. So, please mark your calendars for Thursday, May 7th. That webinar will be titled Bank On and Reaching the Unbanked in Our Communities. It’ll [include] leaders from a broad range of organizations focused on advancing banking access to households via the Bank On program. Registration is now open.
Everyone, once again, thanks to our presenters, and thanks to the audience for taking time out today to join us. On behalf of Fed Communities, have a lovely rest of your week and we’ll see you next time. Thank you.
LISTEN TO THE PODCAST The Small Business Credit Survey (SBCS) has been administered nationally since 2016 by the 12 Federal Reserve Banks in collaboration...
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