What Changed?
For years, small businesses thrived on easy access to credit. From low-rate bank loans to generous lines of credit, Main Street could borrow cheaply to fund expansion, hire workers, and weather seasonal slowdowns. But the era of “easy money” is over.
Since the Federal Reserve began raising rates in 2022, lending standards have tightened dramatically. Many banks, especially smaller regional ones, have become cautious after last year’s banking stress. Now, even healthy businesses are finding it harder — and more expensive — to borrow. The result? A quiet credit crunch that’s squeezing the real economy far more than headline data suggests.
The Numbers
14% — The average interest rate on new small-business loans in 2025, up from just 5.6% three years ago.
51% — Share of small-business owners who say financing conditions have worsened this year, according to the NFIB.
17% — Decline in small-business loan approvals among regional banks since January.
Record highs — Credit-card balances among small firms, as owners turn to personal financing to bridge cash flow gaps.
23% — Portion of small businesses reporting delayed vendor payments — a sign of mounting strain.
Why It Matters
Main Street isn’t just sentimental shorthand — it’s the backbone of the U.S. economy, accounting for nearly half of private-sector employment. When small firms can’t borrow, they can’t grow, hire, or invest. That slowdown filters up to consumer spending, local tax revenues, and eventually, national GDP.
Tighter lending also shifts the balance of power. Larger corporations with access to capital markets can issue bonds or tap private credit, while smaller firms face a wall of higher costs and lower availability. In some sectors — construction, retail, and hospitality — this divide is widening into a survival gap.
There’s a deeper story here, too: the rise of credit inequality. As regional banks retreat and private lenders fill the gap, funding is increasingly flowing to those with collateral, scale, or connections — not necessarily the most productive businesses.
Takeaway
Small businesses don’t fail because they run out of ideas — they fail because they run out of cash.
As lending tightens, Main Street’s margin for error is shrinking fast. For investors, this means watching the credit cycle as closely as the earnings cycle. For policymakers, it’s a reminder that rate cuts alone won’t fix everything — not when the last credit line on Main Street is starting to close.
— Lauren
Editor, American Ledger