Bank of America says small firms are shifting faster than expected, using new tactics to stay afloat and grow as the economy cools from the inflation surge. The bank’s assessment points to owners who are adjusting prices, supply chains, and payment methods to meet changing customer habits. The message carries weight because small businesses employ millions and anchor neighborhoods across the country.
Small firms have had to navigate higher borrowing costs, persistent wage pressures, and uneven consumer spending since the pandemic. Yet business applications remain well above pre-2020 levels, and hiring needs have held up even as confidence surveys show caution. The picture is mixed, but large banks and payment processors report steady transactions at many local shops and services.
What the bank is seeing
“Bank of America says small businesses are adapting more quickly and taking advantage of the new economic landscape.”
The bank’s economists say owners are moving with speed to protect margins and keep customers. Analysts who study account and spending trends note rising use of digital invoicing, contactless payments, and point-of-sale financing. They also see firms adjusting order sizes and delivery schedules to cut waste and smooth cash flow.
Signals from the Main Street economy
Several indicators suggest resilience. Consumer spending has cooled from its peak but remains steady for services like food, travel, health, and home repair. Business formation data from federal agencies show millions of applications each year since 2020, pointing to ongoing churn and entrepreneurship. At the same time, owner sentiment remains subdued, reflecting concerns over costs and demand.
- Borrowing costs are still elevated, making loans and lines of credit more expensive.
- Wage growth has eased but labor remains tight in skilled trades and services.
- Input costs, from shipping to packaging, are off their highs but remain uneven.
- More sales are moving through digital channels, even for local service firms.
How firms are adjusting
Owners are clustering around a few playbooks. Many are introducing smaller product bundles to hit price points that fit tighter household budgets. Service businesses are shifting staffing mixes, adding part-time or on-call workers to match demand. Others are negotiating shorter leases or revenue-linked rent to lower fixed costs.
Payments strategy is another focus. Faster settlements can reduce the cash gap between sale and payroll. Some firms are promoting debit or cash discounts to offset card fees. A number are offering installment options for larger purchases, which can lift conversion even when customers hesitate.
Credit and cash flow pressures
Access to credit tightened in 2022 and 2023 as rates climbed. While inflation has cooled from its peak, high rates still weigh on expansion plans. Banks report healthy balance sheets among many borrowers, but the cost of debt is a sticking point for equipment buys and inventory builds. Public programs and community lenders remain important for first-time owners and those in lower-margin sectors.
Experts say cash flow discipline matters more now. Regular forecasting, inventory turns, and break-even reviews help firms avoid surprises. Owners who track weekly inflows and outflows are quicker to adjust buying, staffing, and pricing when demand shifts.
A split view: resilience vs. restraint
Industry groups continue to flag unease. The National Federation of Independent Business has kept its optimism index below the long-term average through much of 2023 and 2024. Owners cite inflation, labor quality, and taxes as top problems. Yet hiring plans have not collapsed, and job openings at many small firms remain above pre-pandemic norms.
This split view suggests a cautious expansion. Many owners are still investing, but they are picking projects with quicker payback and lower risk. Technology that speeds payments or automates simple tasks is drawing interest because benefits show up fast.
What to watch next
The path of interest rates will shape decisions through the year. A gradual decline could free up expansion budgets and spur equipment upgrades. Stable energy and shipping costs would also help margins. On the demand side, steady employment and wages remain the best support for local spending.
For now, the bank’s readout captures a simple point: small businesses are not standing still. They are testing new price points, reworking supply lines, and meeting customers where they are—online and in person. If that continues, Main Street could extend its run of steady, if careful, growth.
Bottom line: Watch credit costs, track cash flow closely, and keep offers flexible. These steps can help owners turn a cautious consumer into a repeat customer, even as the economy settles into a slower pace.
