Every year, the Federal Reserve surveys thousands of small businesses about how they're doing, what they're worried about, and what they expect next. This year's report - the 2025 Small Business Credit Survey, covering 6,525 employer firms and released in a series of reports between March and early April 2026 - is worth reading slowly.

Not because it's catastrophic. Because it's honest about a pressure pattern that a lot of business owners are living through but may not have seen reflected in official data until now.

The Hiring Picture

Revenue and employment held reasonably steady between the 2024 and 2025 surveys. That's the headline most outlets led with. But the expectations data tells a different story.

The revenue expectations index fell six points year over year, from 39 to 33. The employment expectations index fell three points, from 26 to 23. Both are at their lowest levels since the 2020 survey - the pandemic year.

To translate that into plain terms: businesses are not collapsing today, but their confidence in the next 12 months has dropped sharply.

The NFIB, which tracks small business hiring separately, found that hiring or attempting to hire hit its lowest reading since May 2020 in January 2026. A net 12% of small business owners planned to create new jobs - the weakest reading since May 2025.

For anyone who has been trying to hire this year and found the market oddly slow: this is why. Less competition for workers is partly explained by the fact that fewer businesses are actively looking.

The Tariff Cost Squeeze

The Fed survey was fielded between September and November 2025 - before the recent escalation of tariffs in 2026. Even so, tariff-related cost pressure was already visible.

More than four in ten firms said increased costs associated with tariffs were a financial challenge in the prior 12 months. When you combine that with the broader category of rising costs of goods, services, and wages - the most common financial challenge overall - 77% of firms reported one or both.

That means roughly three out of four small businesses are dealing with some form of cost pressure right now. They are responding in different ways:

• 76% of firms with foreign-sourced inputs reported passing at least some of the higher costs on to customers
• 60% reported absorbing at least some of the increases themselves
• Only 13% switched to domestic suppliers
• Only 8% switched to different foreign suppliers

The takeaway: most businesses are either passing costs on or eating them. Very few are actually repositioning their supply chains. That may come later. It hasn't happened at scale yet.

Where the Pressure Is Concentrated

Tariff-related cost challenges hit some sectors harder than others. The Fed data shows they were most prevalent in:

• Retail: 69% of retail firms reported tariff-related cost challenges
• Manufacturing: 62%

For retailers - especially small independent ones competing with national chains that have more pricing power and supply chain flexibility - a 69% tariff impact rate is not a minor headwind. It is a structural squeeze that shows up in margin compression, higher prices, or both.

The Operational Challenge That Outranks Everything Else

Here is the finding that surprised me most. When the survey asked about operational challenges - not financial ones, but day-to-day running of the business - the top response was not costs, not regulation, not finding workers.

It was reaching customers and growing sales.

More firms cited that as their primary operational challenge than any other factor, including hiring or retaining qualified staff (which came second).

That is a signal about where small businesses are struggling that gets lost in the broader conversation about interest rates, tariffs, and inflation. The core business problem for many small business owners in 2026 is not that things cost too much. It's that not enough customers are showing up.

What to Take from This

The Fed data is a snapshot of where small businesses stood heading into 2026. The months since have added more pressure - escalating tariffs, softening consumer confidence, ongoing uncertainty about credit availability.

A few practical reads on this data:

If you are absorbing cost increases rather than passing them through, you are in the 60% - but that is not sustainable indefinitely. If your margins are already thin, this is the quarter to model what a further 15% to 20% cost increase looks like and decide now whether you'd raise prices, reduce scope, or adjust product mix.

If reaching customers is your primary challenge, that is more actionable than it sounds. The businesses that are winning that battle right now are investing in retention and referrals - lower cost than acquisition - and using AI tools to reduce the time per marketing task so they can do more with the same headcount.

If you are considering hiring, the data says most of your competitors are pulling back. That means the talent pool is slightly more accessible than it has been in recent years. If you find the right person at the right price, 2026 may actually be a reasonable time to bring them on.

Priya Kapoor covers small business finance and economics for The Useful Daily. Sources: Federal Reserve 2026 Report on Employer Firms (2025 Small Business Credit Survey), Federal Reserve 2026 Firms in Focus Chartbooks, NFIB February 2026 Jobs Report