Consumer Spending and an AI Boom: The Latest Small Business Lending Trends

Highlights: 

• Small business lending saw an 8.1% decline month-over-month and 5.2% year-over-year in August 2025, with serious delinquencies rising but short-term delinquencies plateauing and defaults falling.

• Despite a weakening labor market, consumer spending rebounded over the summer, driven by upper-income households, and a significant AI investment boom is contributing to GDP growth, with 71% of small businesses regularly using AI and 40% reporting a positive revenue impact.

Every month, the Main Street Lending Report shares the latest small business lending data and trends in this unpredictable economy. 

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In today's dynamic economic landscape, small businesses are constantly adapting to new challenges and opportunities. Understanding the underlying trends is crucial for strategic planning and sustained growth. 

October's Main Street Lending Report delves into the latest trends impacting small business lending, including the current labor market, consumer spending, and the boom of investment in artificial intelligence (AI).

The State of Small Business Lending and Delinquencies

The health of small business lending is a critical barometer for the sector. Recent data indicates a notable shift: small business lending experienced an 8.1% decline month-over-month in August 2025, and a 5.2% decrease year-over-year. 

While this might seem concerning, a closer look at delinquency rates offers a nuanced picture. While serious delinquencies (91–180 days) have modestly risen over the last two months, reaching their highest point in the last 15 years, short-term delinquencies (31–90 days) have plateaued, and defaults have actually fallen by 15 basis points since January. 

The Labor Market and Consumer Spending: A Tale of Two Trends

The labor market, often an indicator of economic health, has presented some interesting contradictions. Despite a partial government shutdown delaying official jobs reports, private-sector data from ADP points to a continued weakening in the labor market, marking September as the fifth consecutive month of weak or negative job growth. This trend was likely a factor in the Federal Reserve's decision to cut interest rates in September, with further cuts potentially on the horizon to stimulate growth.

Despite this weakened labor market, consumer spending appears to have rebounded over the summer, an early indication of strong GDP growth in Q3. Retail sales and overall consumer spending have increased for three consecutive months, with real Personal Consumption Expenditures (PCE) improving to 2.7% year-over-year in August. 

This resurgence is primarily driven by stronger expenditures in food, travel, car purchases, and recreational goods, though it's important to note that upper-income households are largely fueling this improvement. Nevertheless, this uptick in consumer demand is a positive sign, contributing to a more optimistic outlook among small business owners, with 60% expecting improved sales over the next year, according to the latest WSJ/Vistage Small Business CEO Index.

The AI Investment Boom: A Catalyst for Business Investment

Beyond consumer spending, a significant boost for the U.S. economy in 2025 has been a surge in capital expenditure activity, largely fueled by the AI investment boom. Robust investment in data centers and other AI-related infrastructure has made substantial contributions to GDP growth, a trend showing few signs of slowing.

While a significant portion of this capital spending is concentrated among a handful of very large tech firms and capital spending among smaller businesses remains weak, Main Street businesses are not entirely left out of the AI boom as increased usage of AI among small businesses continues. 

The September Intuit QuickBooks Small Business Insights survey reveals that 71% of U.S. small businesses regularly use AI, and 40% report a positive impact on their total revenue from AI tools. This indicates that even smaller players are finding ways to leverage AI for tangible benefits, suggesting a future where AI integration becomes increasingly vital for competitiveness.

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