How Inflation Is Affecting Small Business in 2026

Cost pressure is now the most common financial challenge U.S. small businesses report. In the Federal Reserve Banks' 2026 Small Business Credit Survey report, 77 percent of small employer firms said they faced rising costs of goods, services or wages, increased tariff-related costs, or both.

How many small businesses are actually affected by rising costs?

Most of them. The Federal Reserve Banks' 2026 Small Business Credit Survey report, which covers the 2025 survey of employer firms, found that rising costs of goods, services or wages was the single most common financial challenge reported in the prior 12 months. More than four in ten firms separately reported increased costs associated with tariffs, and 77 percent reported one or both.

That 77 percent is the number worth holding onto, because it says cost pressure is close to universal rather than concentrated in a few unlucky sectors. It also reframes the question an owner should be asking. When almost every business faces the same input cost increase, the competitive question is not whether your costs went up. It is what you did about it relative to everyone else selling to the same customers.

Which industries are being hit hardest?

Tariff-driven cost pressure is heavily concentrated in businesses that physically buy and move goods. Tariff-related cost challenges were most prevalent in retail, at 69 percent of firms, and manufacturing, at 62 percent. The exposure runs through the supply chain: 48 percent of firms said they sourced at least some of their inputs from outside the United States, and 14 percent sourced more than half that way.

Service businesses are not exempt, but the pressure reaches them differently. A firm that buys almost nothing from abroad still feels wage costs, insurance, rent and the higher prices its own suppliers now charge. The practical difference is the speed at which the increase arrives. A retailer sees it on the next purchase order; a service firm sees it gradually, in renewals and pay reviews, which makes it easier to miss until margin has already moved.

If you want to see how differently sectors absorb shocks over time, the pattern shows up in longer-run data too. Our survival rates by industry track how much sector economics change the odds across a decade.

Are small businesses raising prices or absorbing the cost?

Both, and mostly at the same time. Among firms reporting higher input costs, 76 percent passed at least some of the increase on to customers and 60 percent absorbed at least some of it. Because those shares overlap, the typical response is a split rather than a clean choice: raise prices partway, and take the rest out of margin.

Relatively few firms restructured their supply chain in response. Only 13 percent changed to domestic suppliers, 8 percent moved to different foreign suppliers, and 3 percent relocated production to the United States. That is a strong signal about what is realistic in the short run. Renegotiating who you buy from is slow and expensive, so most owners reach for the pricing and margin levers first because those are the ones they actually control.

The caution in the data is on the demand side. Firms were more likely to expect a decrease than an increase in revenue in the year ahead, and the revenue expectations index fell six points year over year, from 39 to 33. Passing on cost works until customers stop buying, and expectations suggest owners already sense that limit. If you are working out how much you can move price, our guide to what a good profit margin looks like is the place to start.

What actually helps when costs rise faster than revenue?

Start by finding out where the increase actually landed. Compare your gross margin across the last several months rather than looking at total costs, because a margin that has slipped two points tells you the increase reached your product costs, while flat margin and lower net profit points at overheads instead. That distinction decides whether the fix is pricing or expense control.

Then decide what the shortfall really is. Higher input costs create a cash need before they create a revenue problem, because you pay suppliers now and collect later. That gap is a financing question, and it is the most common one owners bring: in the same survey, 56 percent of firms that sought financing did so to meet operating expenses. Approval was mixed, with 42 percent of applicants receiving the full amount they sought, 36 percent some or most, and 22 percent none.

That spread is the argument for shopping the market rather than asking one bank. The Broker Shop is a funding broker, not a funder. We put a single application in front of more than 50 competing lenders whose guidelines differ, which is why one decline says very little about your real options. If the pressure is inventory and supplier timing, compare the funding options designed for working capital rather than long-term debt. It is free to apply, and checking your options won't affect your credit score.

One thing worth saying plainly: financing an input cost increase buys you time to reprice or re-source, and it does not fix a product that no longer works at the new cost base. If the maths does not close after a realistic price rise, the answer is a change to the offer, not a larger advance.

Frequently Asked Questions

Sources: Federal Reserve Banks — 2026 Report on Employer Firms, Small Business Credit Survey (2025 survey)