Why Small Business Earnings Are Rising In 2025

Forbes

23-07-2025

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Despite the lingering threat of tariffs, interest rates that have not come down as expected, and higher structural costs, small business earnings continue to rise in 2025.
According to Biz2Credit's monthly Small Business Earnings Report, average monthly earnings increased to $62,300 in June 2025, up markedly from May. This continues a positive run for earnings, nearly doubling since the beginning of the year.
Key Findings for June 2025:
Small businesses have faced strong headwinds in 2025, yet continue to produce growing earnings. In the first half of 2025, small business earnings have risen 75% as inflation remains tempered under 3% this year. Expenses ticked upward as small businesses continue to feel the brunt of tariffs on imports and various input goods, but significant price hikes for consumers haven't manifested yet.
Reasons Why Small Business Earnings Continue to Climb in 2025
We have seen a downward trend of inflation in 2025, after several years of high inflation. Gasoline prices have dropped significantly in the past year. AAA reports that the current average price of gasoline is $3.14, compared to $3.50 a year ago. The price of eggs, famously a barometer for inflation in 2024 last year, has decreased 7.4% in June, according to the U.S. Bureau of Labor Statistics.
Early in the year, many economists warned that President Trump's tariff wars could kickstart inflation. That has not yet happened as the president has been using tariffs to renegotiate with trade partners and not yet begun collecting the steep levies he warned of when he first took office. Further, for the sectors in which tariffs have gone into effect, many businesses stocked up on inventory that they expected to be slapped with the import taxes.
Technology not only reduces costs by reducing paperwork, costs of marketing, and the labor required for repetitive tasks, but it also drives revenue with digital tools that help expand markets. Out of necessity, small businesses upgraded their online sales capabilities during the pandemic, when consumers could not go out and shop. Business owners continued to increase their capabilities after the COVID lockdowns, resulting in expansion nationwide and even internationally.
Small business owners remain cautiously hopeful for the remainder of the year as tax reform is complete. Taxes have remained a large pain point for small business operators, but now they should expect more stability and predictability after the Big Beautiful Bill was signed into law on July 4.
Consumer spending has remained strong, particularly for industries like arts & entertainment (Broadway had a record year), dining, and travel and tourism. Small businesses in these sectors are still benefiting from pent-up demand from the pandemic years.
Spurred by SBA lending and the growth of fintech lenders that offer alternative lending products, investment capital is available to help business owners pursue their goals. They are taking advantage of the availability of shorter processing times for funding requests and ceasing growth opportunities when they arise.
Interest rates are lower than they were a year ago, and there is also reason for optimism since the Federal Reserve has signaled the possibility of interest rate cuts in the second half of 2025. The easing of inflation has put more pressure on the Fed to lower rates for the first since 2024.
Related: Fed Holds Interest Rates Steady, But Signals Cuts May Happen This Year
Lowering the cost of capital helps firms that have variable rate small business loans. Businesses may take advantage of the opportunity to refinance existing debt. This is helpful for companies that are looking to invest in their long-term growth or simply lower cost pressures.
Potential Causes of Concern for Small Business Earnings
The economy is still relatively strong, but certain cost pressures remain and continue to hurt earnings growth.
Despite the generally good news as the second half of the year is underway, there are still areas of concern. The labor market is still strong. Thus, it costs more to attract, hire and retain them in many sectors of the economy.
Commercial rents have remained high this year and show no signs of declining. Natural disasters and other factors have put pressure on insurance companies, which are unlikely to lower their rates. Utility bills in many sections of the country have soared. These fixed costs, if they continue to rise, naturally will hurt the earnings of small businesses.
For instance, The average rate of commercial space was $33.15 per sq. foot in May, increasing 4.8% year-over-year, according to Commercial Café. The rise in online retailing has spurred demand for warehouse space for storage and distribution of orders. This has driven up rental rates and construction of industrial facilities, reports IBISWorld, which provides industry research on thousands of industries, including commercial real estate.
Rents remain elevated in urban corridors of top-tier markets like Los Angeles, Miami, and New York, where commercial space on 5th Avenue on the Upper East Side can command $2,000 per sq. foot. Additionally, commercial rents in suburbs like New York, Boston, and Dallas have all seen more consistent rent growth due to population shifts, and the appeal of convenient, service-oriented retail space, according to CBRE.
U.S. commercial insurance rates rose 3% on average in Q1 2025, up from the previous quarter, with umbrella/excess liability and auto coverages experiencing the highest rate increases, according to MarketScout's Market Barometer. Commercial insurance rates also rose dramatically in 2024.
Utility bills are rising, particularly during this hot summer. In Q2 2025 alone, U.S. utilities requested or received approval for roughly $9 billion in electricity-rate increases—bringing the first-half total to $29 billion, more than double the same period in 2024, reports PowerLines.org.
Related: Three Ways To Increase Earnings This Summer
Despite cost pressures, small business earnings continue to grow this year. In fact, increases have been consistent because of the solid revenues and the overall reduction of inflation. All eyes will be on whether the Federal Reserve moves on interest rates during the next Federal Open Market Committee (FOMC) meeting later this month on July 29-30.