Hospitality Struggles While Micro-Businesses Stage a Comeback on Main Street

For several years, small- to medium-sized businesses (SMBs) in the United States have lived under a cloud of uncertainty.

From pandemic shutdowns to runaway inflation and supply chain chaos, the expectation has been that Main Street could crack under the weight of global pressures. Now, with tariffs reshaping the cost structure of imported goods, many analysts have assumed the smallest firms would be hit hardest.

However, the latest data suggests otherwise. In the second quarter of 2025, confidence among SMBs not only held steady but hit record highs. According to the PYMNTS Intelligence August SMB Growth Report, “Small Business Growth Monitor Q2 2025: From Headwinds to Hope on Main Street,” 82% of SMBs said they expect to survive at least two more years.

That’s the highest level of optimism since the survey began in 2022, and it arrived in the face of escalating tariffs and high operating costs. But SMBs aren’t just surviving; they’re growing more confident about the future.

This psychological shift matters. Optimistic business owners are more likely to invest in hiring, training and marketing, all of which drive performance. They’re also more inclined to take calculated risks, such as entering new markets or testing new products.

Micro-SMBs, those with annual revenues below $150,000 and often regarded as most vulnerable to economic shocks, are showing gains in confidence, per the report.

In March, 68% of micro-SMBs expressed confidence in their long-term survival. In June, that figure climbed to 75%.

The gains suggest that even the smallest firms are finding ways to adapt. Many cited sharper marketing efforts, stronger community outreach and incremental technology upgrades as the levers that keep customers engaged and revenues flowing.

That resilience was not evenly distributed. Medium-sized SMBs, with revenues between $150,000 and $1 million, saw their confidence dip from 87% in March to 83% in June. Hospitality businesses, like restaurants, hotels and travel-related services, continued to post the weakest outlooks, reflecting thin margins and rising labor costs.

The overall momentum across Main Street, however, was unmistakable. A key driver was demand.

Consumers continued to spend on categories where local businesses dominated, like personal care, apparel, extracurricular services and neighborhood dining. That steady demand explained why 40% of SMBs reported benefiting from increased customer activity.

Read the report: Small Business Growth Monitor Q2 2025: From Headwinds to Hope on Main Street

What emerged from the PYMNTS Intelligence data was that SMB optimism isn’t blind faith but rooted in deliberate strategy. Micro-SMBs use agility, trimming costs where necessary and doubling down on customer relationships. Medium-sized firms refine their product mix and marketing. Large businesses invest in technology upgrades to boost efficiency and offset labor costs.

Point-of-sale systems that integrate seamlessly with eCommerce, artificial intelligence-powered marketing platforms that target customers with precision, and supply chain management tools that provide real-time insights are helping SMBs punch above their weight.

Still, tariffs on imported goods remain a concern. The report found that 38% of micro-SMBs reported being directly affected by rising costs tied to imports, compared to 30% of larger peers. These firms often lack the bargaining power or scale to absorb price increases. For some, the ripple effects show up as cash flow challenges and delayed payments, which 18% micro-SMBs reported.

For large SMBs, the pain points looked different. Almost 25% reported labor-cost inflation as a primary challenge, and 15% cited supply chain disruptions. Yet these firms also had more room to maneuver, whether by investing in technology, expanding product lines or renegotiating with suppliers.

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