Navigating the Currents: Small Business Lending and the Changing Market

Highlights: 

• Small business lending increased by 9.2% month-over-month in July 2025, with stabilized delinquencies and lower defaults compared to 2024, despite changing market conditions.

• Rising core prices, particularly in import-heavy categories, and a softening labor market complicate the Federal Reserve's decision on interest rate cuts, with markets anticipating two to three cuts by the end of 2025.

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

In September’s report featuring data through July 2025, we see that, despite changing market conditions, small business lending did increase 9.2% month-over-month in July 2025, and both short-term and long-term delinquencies seem to have stabilized, while defaults are lower compared to the same period in 2024.

For more small business lending analysis, subscribe to the monthly insights.

The economic landscape is a dynamic one, constantly shifting and presenting new challenges and opportunities for small businesses. This month's Main Street Lending Report delves into the latest trends impacting small business lending, particularly in the face of evolving inflation, labor market conditions, and the Federal Reserve's monetary policy.

On The Rise: The Cost of Doing Business

While recent reports have generally aligned with expectations, a closer look at core price indicators—which excludes the more volatile food and energy sectors—reveals an upward trend. This suggests that trade-related costs are increasingly being passed through to consumers, a significant development for small businesses.

According to the Yale Budget Lab, core goods prices are nearly 2% above their pre-2025 trend, with even higher increases in import-heavy categories like electronics, appliances, and furniture. Furthermore, core producer prices, which often act as a leading indicator for consumer prices, have also trended higher since April. These combined trends strongly suggest that tariffs are now exerting measurable pressure on prices. The initial uncertainty surrounding trade rule changes has faded, built-up inventories are being depleted, and cost increases are now being passed on to consumers.

Interest Rates: A Delicate Balance

The Federal Reserve faces a challenging path forward. With core prices rising and a weaker labor market, the Fed must navigate these conditions as it considers potential interest rate cuts. Markets are already anticipating two to three rate cuts by the end of 2025, but the Fed operates under a dual mandate: maximizing employment while ensuring price stability. A softening labor market combined with trade-related cost increase risks complicates this.

The labor market saw a slowdown in August, with only 22,000 jobs added. Furthermore, preliminary revisions from the Bureau of Labor Statistics' annual benchmarking initiative suggest that the labor market added nearly one million fewer jobs in 2024 than initially reported. 

In response to this data, markets now assign a 90% probability of a rate cut at the September FOMC meeting, with expectations of two additional cuts by year-end. Lower borrowing costs and improved access to credit could stimulate growth and provide a more favorable environment for small business lending if such cuts occur.

Keep Your Business Goals Within Sight

We hope you’ll join us for future Market Pulse webinars. To ask questions in real time and gain deeper insights before anyone else, you have to be there. You can register — as well as find our monthly reports, the Market Pulse podcast, and more — at our Market Pulse hub. 

Interested in learning how personalized insights can drive your business forward? Sign up for a complimentary 60-minute Market Pulse Advisory with one of our experts. 

Broaden your perspective with insights that inspire bold innovation, confident adaptation, and decisive leadership through Trends and Insights. 
Connect with us on YouTube and LinkedIn for even deeper insights.