The biggest problems small businesses face, according to the Federal Reserve's survey of 6,500 owners
The short answer: the most common operational problem small employers report is reaching customers and growing sales, followed by hiring or keeping qualified staff. The most common financial problem is rising costs of goods, services, and wages, reported by three quarters of firms. Financing is widely used but often more expensive than expected, particularly from online lenders. Nearly half of firms now use AI in some form, but very few have integrated it fully. The problems split cleanly into those an owner can influence and those they cannot.
About the data
Opinions about what small businesses struggle with are easy to find. Reliable data is rarer. One of the best sources is the Small Business Credit Survey, run annually by the twelve Federal Reserve Banks.
The 2025 survey was fielded from September to November 2025 and drew 6,525 responses from firms with 1 to 499 employees across all 50 states and the District of Columbia. Its findings were published in March 2026. The prior year's survey drew 7,653 responses.
One caveat the Fed itself makes: the survey is a convenience sample, not a random one, so the percentages are strong indicators rather than exact population figures. With that in mind, here is what owners reported.
Problem 1: Reaching customers
In both of the last two surveys, the most commonly reported operational challenge was reaching customers and growing sales. In the 2024 survey, 57 percent of firms named it, up from 53 percent the year before. The 2025 survey kept it in first place.
At the same time, the shares reporting hiring and supply chain difficulties fell between 2023 and 2024. As the pandemic-era constraints eased, the oldest problem in business moved back to the top.
What it means in practice. For most small firms this is less a marketing budget problem than a follow-through problem. The questions worth asking are mechanical: Where do inquiries arrive, and who sees them? How long until someone responds? What happens to a lead that does not convert immediately? Is anything measured? Businesses that can answer those questions tend to find that demand was not the constraint. Catching it was.
Problem 2: Rising costs
Rising costs of goods, services, and/or wages was the most common financial challenge in both surveys. In the 2024 survey, 75 percent of firms cited it. More than half also cited paying operating expenses (56 percent) or uneven cash flow (51 percent).
The 2025 survey added tariffs to the picture. More than four in ten firms reported increased costs related to tariffs, and 77 percent reported rising costs, tariff-related costs, or both. Nearly half of firms source at least some inputs from outside the United States, and 14 percent source more than half. Tariff-related cost challenges were most prevalent in retail (69 percent) and manufacturing (62 percent).
How firms responded is revealing: 76 percent of those with foreign inputs passed at least some of the increase on to customers, 60 percent absorbed at least some of it, and only 13 percent switched to domestic suppliers.
What it means in practice. Input prices are outside an owner's control. What is inside it is how quickly the effect becomes visible. "Uneven cash flow" and "trouble paying operating expenses" are frequently symptoms of lag: invoices sent late, prices not updated since costs moved, and no weekly view of margin. The businesses that handle cost shocks best are usually not the ones with the deepest reserves but the ones that see the shock soonest.
Problem 3: Hiring and keeping staff
Hiring or retaining qualified staff was the second most common operational challenge in the 2025 survey. It had eased from its pandemic peak but remains near the top.
What it means in practice. Two things are often conflated here: needing more people, and needing people with a skill nobody on the team has. The first is a capacity problem solved by hiring. The second is a capability problem, and hiring for a capability you need once is an expensive way to get it. Separating the two before writing a job description avoids a common and costly mistake. It also helps to notice how much of a role is repetitive work a system could absorb; a role that is 30 percent smaller is easier to fill and to keep filled.
Problem 4: Financing that costs more than expected
Financing is routine: 86 percent of firms use it on a regular basis, and 60 percent applied for some form of financing in the prior 12 months. Of applicants, 42 percent received the full amount sought, 36 percent received some or most, and 22 percent received none.
Where firms borrow has shifted. The share of applicants seeking financing from online lenders rose from 17 percent in the 2020 survey to 29 percent in 2025. Applicants at small banks were the most likely to be fully approved, at 57 percent. But cost surprises differ sharply by lender: 60 percent of firms that borrowed from online lenders said their borrowing costs were higher than expected, against 37 percent at small banks and 32 percent at large banks. Only 4 percent of online borrowers found costs lower than expected.
One more structural note: the share of firms with no outstanding debt has grown from 21 percent in the 2020 survey to 31 percent. Among those with debt, 59 percent secured it with a personal guarantee and 51 percent with business assets.
What it means in practice. Speed and approval odds are real advantages of online lending, and the survey shows why owners choose it. But the gap in cost surprises suggests many firms are not comparing the total cost of financing before signing. Given that most borrowing is personally guaranteed, that comparison deserves an hour of attention.
Problem 5: AI that is being tried but not trusted
The 2025 survey asked about artificial intelligence for the first time. Forty-six percent of firms said the business or its employees currently use AI, and another 15 percent planned to begin. One third had no plans to.
Among users, adoption is shallow: about half described themselves as experimenting, 44 percent had partially integrated AI, and only 7 percent had fully integrated it. The most common uses were writing or marketing (83 percent), individual productivity (61 percent), and planning or analysis (51 percent). Seventy-one percent said it increased productivity, 39 percent reported better quality of goods and services, and 31 percent reported higher sales.
The two most common challenges were accuracy (46 percent) and adapting the tools to business needs (43 percent). Among non-users, over half said AI was not applicable to their business and 30 percent said they preferred not to use it.
What it means in practice. The pattern is consistent with a technology that is easy to try and hard to embed. The firms reporting real gains have generally picked one repetitive, well-defined task, built the tool into how that task is done, and kept a person checking the output. Treating AI as a systems question, with a defined job and a defined check, addresses both of the top complaints at once.
Two columns
Sorting these findings by what an owner can influence:
Largely outside your control: input prices, tariffs, interest rates, the local labor supply. Plan for them; do not expect to fix them.
Substantially within your control: how quickly you respond to demand and whether you measure it; how soon cost changes show up in your numbers and prices; whether roles are designed around what a person must do versus what a system could; the total cost of the financing you accept; and which specific tasks you point AI at.
The second column is where most of the leverage sits, and most of it is process and configuration rather than capital.
Frequently asked questions
Is this survey representative of all small businesses? It covers employer firms with 1 to 499 employees and uses a convenience sample. It does not cover businesses with no employees. The Fed weights results, but it advises treating figures as indicative.
Where can I read the full reports? Both are free on the Fed Small Business site, linked below, with downloadable data appendices.
Does the survey say anything about which industries struggle most? Yes. For example, tariff-related cost challenges were reported most in retail and manufacturing. The full report breaks several measures down by industry, firm size, and owner demographics.
Sources. Federal Reserve Banks, Small Business Credit Survey: 2026 Report on Employer Firms (findings from the 2025 survey, published March 2026) and 2025 Report on Employer Firms (findings from the 2024 survey). Both accessed September 2026.