Small Business Optimism Dips Below Average as Loan Rates Climb

A mood that is fading slowly

US small business owners are going into the last two months of 2026 under more strain than a year ago. They are dealing with rising costs and more expensive credit. They also say, more often than before, that their own businesses are only doing "fair." None of the data points to a collapse. What it shows is that owners' finances have less room to absorb shocks, and that more of the cost of getting through is ending up on credit cards and in owners' personal accounts.

The main measure, the National Federation of Independent Business (NFIB) Small Business Optimism Index, fell 0.8 points in September to 97.9. That is one-tenth of a point below its 52-year average of 98.0.2 It was the second monthly decline in a row: the index had reached 99.8 in July, its highest point in almost a year, and then dropped to 98.7 in August.1 TD Economics pointed out that the result came in below the consensus forecast of 98.2. The largest single drag was the share of owners expecting the economy to improve, which fell 4 points to a net 6%.3

The detail behind the headline number is more telling than the decline itself. Just 7% of owners said it was a good time to expand, a 5-point drop from August.2 Owners also rated their own businesses lower. The share calling their business "good" fell from 57% to 48% in one month, while the share calling it "fair" rose from 28% to 35%.4 Holly Wade, NFIB's executive director of research, called that shift a potential area of concern and said it is worth watching.4 NFIB's separate uncertainty index rose to 90, well above its historical average of 68.4 The October reading is scheduled for November 10.1

Costs are coming from several directions

Labor quality was the top problem owners named for the third month running, cited by 26%. Inflation was second at 20%, almost three times its historical average of 7%.2 NFIB connects much of the price pressure to energy. Average gasoline and diesel prices have reached $4.34 and $6.28 a gallon, compared with $2.98 and $3.76 just before the war with Iran started.4 Other surveys find the same pattern. In the Small Business & Entrepreneurship Council's (SBE Council) October survey, gasoline and energy costs rose from ninth place among owners' concerns in February to second, cited by 29%. Inflation stayed first at 39%.31 In the WSJ/Vistage survey of small business CEOs, 44% said their main costs had risen faster than the 3.4% CPI benchmark used in the question. The most common cost themes in their written answers were labor, then fuel and energy, then insurance.34

Owners are passing on some of these costs, but not all of them. A seasonally adjusted net 31% of NFIB respondents raised their average selling prices, compared with a historical norm of net 14%. Another net 31% plan to raise prices.4 In its survey of employer firms, the Federal Reserve found that 77% named rising costs or tariff costs as a challenge, and 47% pointed specifically to tariffs.46 Owners' written comments show the limits of raising prices. One Vistage respondent said its price increases had fallen behind its costs.34 A coffee roaster told Small Business for America's Future that sales flattened after it raised prices because customers began ordering less.32

Credit is getting more expensive, and banks are more cautious

The price of money is now a pressure of its own. The Federal Reserve raised its benchmark rate by a quarter point in September, to a range of 3.75% to 4%.47 That pushed the prime rate to 7.00% on September 17, the Fed's first increase since 2023.46 NFIB data shows the effect quickly. A net 8% of owners said they paid a higher rate on their most recent loan, the highest share since June 2025. The average rate on short-term loans jumped 0.7 points in one month, to 8.2%.2 The Fed held rates steady at its late-October meeting. Even so, Marketplace reported a widespread expectation among lenders and borrowers that rates will rise again.44 TD Economics also said markets expect further tightening.3

Borrowers and lenders are both stepping back. A community bank CFO told Marketplace that his bank's pipeline of new loans had slowed and that demand is sensitive to rates. He also said the upcoming election and rising rates create enough uncertainty to discourage risk-taking. The same report said the Fed's surveys of loan officers show some banks lending more cautiously.44

That follows a stronger stretch earlier in the year. The Kansas City Fed's first-quarter lending survey found small business lending up from a year earlier, with banks of every size reporting stronger demand for the first time since early 2022. But it also found that credit standards kept tightening.50 The Fed's employer survey shows how hard it already was to get full funding. Of firms that applied, 42% received the full amount they asked for, 36% received part of it, and 22% received nothing. Online lenders now account for 29% of applicants, up from 17% in 2020.4650

Federal policy has also narrowed one of the main lending channels. Since March 1, SBA 7(a), 504 and microloan borrowers generally have to be 100% owned by US citizens or nationals. The cap on 7(a) "small" loans also fell from $500,000 to $350,000.1617 Updated SBA lending rules took effect on October 1.46 Some of the changes expand access: since July 4, borrowers can combine 7(a) and 504 financing for up to $10 million.16 For small firms, though, the tighter eligibility and smaller fast-track loans are the changes that affect them most directly.

Business credit cards are filling the gap

This is where business credit cards come in. They are often the fastest credit a small firm can get. Fed data shows the most common reason firms seek financing is to cover operating expenses, cited by 56%.2450 WalletHub estimates that 62% of businesses used credit cards in 2025, compared with 44% that used loans. It puts the average business card rate at 21.16%, up about 32% from 2016.41 WalletHub also notes an important legal difference. On consumer cards, issuers must generally wait until an account is 60 days past due before raising the rate on an existing balance. On business cards, they can raise it at any time.41 For owners using cards as working capital, that makes the cost of their debt unpredictable at a time when rates are going up.

The price gap with other products is large. In one lender's survey of owners who have credit lines, respondents put typical business card APRs at 19% to 29%. The median rate on a line of credit was 14%.21 On the consumer side, the average rate on new card offers rose to 23.96% in October, the highest in almost a year.47

Issuers, meanwhile, are aiming their newest products at higher-spending businesses. The Business Platinum Card from American Express costs $895 a year, and Chase's Sapphire Reserve for Business costs $795.22 Citi has reportedly been surveying business customers about a card with an annual fee above $600.28 Our reading is that two separate markets are developing. Issuers compete for businesses that pay their balance in full and earn rewards. Owners under strain carry balances at more than 20% interest.

Cards also add cost on the merchant side. J.D. Power's 2026 merchant services study found that 35% of small businesses add a surcharge for credit card payments. Among merchants that surcharge, 32% said customers had canceled purchases after seeing the fee.42 A proposed Visa and Mastercard interchange settlement could lower some fees, but merchant groups have objected, and a final approval hearing has been reported for November.43

Surveys disagree on how bad it is

Not every survey describes the same situation. The WSJ/Vistage CEO confidence index rose 6.1 points to 91.1 in October, ending two months of declines.34 In the SBE Council survey, 81% of owners said they were meeting or beating their financial expectations for 2026.31 In Intuit QuickBooks' holiday survey, 76% expected to earn more this season than last.35 Small Business for America's Future, an advocacy coalition, found much more distress. In its survey, 83% of owners were worried about their company's financial health over the next year. Nearly two-thirds had skipped or reduced their own pay, and 52% said their personal debt had grown.32

We think differences in samples explain much of the gap. Vistage surveys firms with $1 million to $20 million in revenue.34 The coalition's survey includes many owners already under pressure, and it was released close to the midterm elections.32 Even the more upbeat surveys contain warning signs, however. In the SBE Council data, 54% of owners said limited access to capital was holding back growth, up from 43% in February.31 That is a sharp rise for a group that otherwise says it is on plan.

Our reading

We believe the soft headline numbers understate the problem. Most owners say they are coping, but the ways they are coping cost more over time. They are raising prices in front of wary customers, taking less pay themselves, and putting operating expenses on cards whose rates can change without notice. Each of these works for a while, and each becomes harder to keep up if rates keep rising.

The things to watch over the next few months are NFIB's reading on business health and its loan-rate series, the October optimism figure due November 10, and whether the Fed raises rates again. If borrowing costs rise further while fuel stays high, the shift toward card debt is likely to go from a temporary bridge to a lasting cost that small firms have to cover from thinner margins.