Main Street Lending Slows as Small Businesses Prepare for a New Set of Challenges
Highlights:
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Strategic Borrowing Restraint: The Small Business Lending Index fell 8.2% monthly as owners adopt a cautious approach, focusing on managing existing debt and stability over expansion.
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Resilient Credit Performance: Despite lending pullbacks, credit quality is improving with declining defaults and steady delinquency rates, supported by strong Q3 2025 GDP growth.
For many small business owners, November 2025 felt less like a setback and more like a moment to catch their breath.
According to our latest Main Street Lending Report, lending activity slowed as the Small Business Lending Index fell 8.2% from October 2025 and 6.8% from November 2024. Rather than signaling widespread stress, this decline reflects a more cautious approach to borrowing. After several years of economic volatility, many business owners are choosing to hold back on new debt and focus on stability.
This pause suggests that small businesses are carefully weighing expansion plans, watching costs, and waiting for clearer signals before taking their next steps.
Credit Quality Improves Even as Lending Pulls Back
While fewer loans were issued, the loans already on the books looked healthier. Short-term and severe delinquencies held steady from October to November, and defaults declined by 11 basis points. This improvement in credit quality points to stronger cash flow management and a greater emphasis on meeting existing financial obligations.
For commercial lenders and business owners alike, this trend offers reassurance that Main Street remains on solid footing, even as economic conditions evolve.
Economic Growth Provides a Supportive Backdrop
The broader economy continues to offer support. Real GDP grew at a strong 4.3% annualized pace in the third quarter of 2025, driven primarily by consumer spending. Growth is expected to moderate to about 2.6% in the fourth quarter, but that still represents a solid close to the year.
Small business confidence is responding. The NFIB Small Business Optimism Index rose in December as owners reported better business conditions and greater certainty about the path ahead.
Affordability Pressures Weigh on Main Street
Despite easing cost increases, affordability remains top of mind for small businesses. Prices are still significantly higher than they were before the pandemic, with consumer and producer prices up roughly 26% since late 2019. Key operating expenses such as electricity, machinery, and equipment have risen even faster.
These higher costs squeeze businesses from both sides. Operating expenses climb, while customers facing higher household bills may cut back on spending. According to the JPMorgan Annual Business Leaders Outlook, small businesses expect increased expenses and affordability pressures to remain their biggest challenge in 2026.
A “Low Hire” Labor Market Takes Shape
The labor market is also shifting. Hiring slowed sharply in 2025, with monthly job gains falling well below levels seen in recent years. Small businesses have borne much of the slowdown, with payrolls declining at firms with fewer than 50 employees.
Fewer job openings and weaker confidence among workers could dampen consumer spending in the months ahead. However, for small businesses looking to expand, it may be easier to find and retain qualified employees with fewer open roles on the market for jobhunters.
What November’s Data Means for the Year Ahead
November’s lending and economic data tell a story of resilience paired with restraint. Small businesses are managing debt carefully, navigating higher costs, and adjusting to a slower labor market. As 2026 approaches, affordability pressures and hiring conditions will be critical factors shaping growth on Main Street. Those that remain flexible and disciplined may be best positioned to weather the challenges — and opportunities — ahead.
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