Small businesses across America are struggling with rising costs as tariffs and inflation squeeze profit margins, according to the Federal Reserve's 2025 Small Business Credit Survey. The report, released Tuesday by the 12 regional Fed banks, found that increased costs of goods, services and wages were the top challenge for smaller firms last year.

More than 40% of firms surveyed reported tariff-related financial pressures, with retail and manufacturing businesses experiencing the most strain. Among companies facing higher costs from tariffs, 76% passed some expenses to customers while 60% absorbed part of the burden. Nearly half of surveyed firms source inputs from outside the United States, with most reporting price increases for foreign materials between 2024 and 2025.

Businesses largely did not respond by changing suppliers or relocating operations within U.S. borders, the survey found. The Trump administration's tariff policies contributed to inflation in 2025, with Fed officials linking much of the overshoot of their 2% target to these tax increases. Recent reports from the New York Fed and Congressional Budget Office found that tariffs are almost entirely borne by those within U.S. borders, contrary to the administration's position that foreign entities pay these costs.