In a recent report, Goldman Sachs Research takes a look at how small businesses are faring amid a slowing job market, high interest rates, and trade policy uncertainty.
Our researchers have observed five facts and trends affecting firms with fewer than 100 employees—small businesses, which the Federal Reserve Board deems “the backbone of the American economy.”
In recent decades, the small business share of total employment has trended down, but in 2024, it remained at roughly 35% of the private workforce (left panel in chart below).
Of note, at the industry level, the share of employees in the leisure and hospitality, construction, and other services sectors is larger among small businesses than large businesses, while the share of employees in the education and health services and manufacturing sectors is smaller among small businesses (right panel in chart below).
Source: Goldman Sachs Global Investment Research, Department of Commerce, Department of Labor
The pace of job creation and destruction—a common measure of labor market dynamism—has been on a secular decline since the 1990s. Yet small businesses still create and destroy jobs at nearly twice the pace of large firms.
In fact, young small businesses that have been operating for fewer than 10 years employ a relatively small share of workers but create and destroy a significant share of jobs.
While small businesses play a smaller role in R&D, they have become more innovative in recent decades. Although only a very small share of small businesses patent, the share of businesses with fewer than 20 employees that received a patent within the prior three years increased from roughly 0.1% in 1980 to nearly 0.3% in 2022.
When a recession hits, small businesses—defined here as noncorporate businesses in the national accounts—reduce investment by more than large corporate businesses, and their capital expenditures take more time to recover.
Small business financing differs from that of larger businesses in two important ways. First, small firms face higher average interest rates than large firms, and as a result, spend more on interest expenses.
Second, small business debt exhibits a bimodal maturity profile. While roughly half of small business debt is variable rate, economist Gabriel Chodorow-Reich and co-authors found that the other half has a somewhat longer average maturity than the typical term loan issued for large businesses.
Goldman Sachs Research highlights five key trends affecting small businesses with an assessment of how this more vulnerable sector of the economy is getting by.
Compared to the rest of the US labor market, employment growth among small businesses seems to have slowed even more sharply.
According to the latest Quarterly Census of Employment and Wages, employment was roughly unchanged between the first quarter of 2024 and first quarter of 2025 for small businesses but grew at a roughly 2% pace for large businesses.
Notably, the trade, manufacturing, and tech sectors—which account for nearly 30% of small business jobs—saw the largest employment losses.
By combining data from the national accounts and from the Federal Reserve’s Flow of Funds, Goldman Sachs Research estimates that interest payments as a share of sector revenues for noncorporate businesses rose from below 7% in 2022 to around 8% in the first half of 2025—about twice the increase seen by corporate businesses over the same period.
If the Fed continues to lower rates, some of this pressure should ease. Survey evidence from the National Federation of Independent Businesses (NFIB) suggests that the interest rates paid by small businesses for short-term loans have declined since late 2024 and credit availability is roughly back to pre-pandemic levels.
According to the Census’ Business Trends and Outlook Survey (BTOS), the shares of small and large businesses reporting higher input costs and higher output prices have risen to a similar degree this year in response to recent shifts in trade policy.
Research from the Boston Fed also found that higher trade policy uncertainty among small importers has been associated with higher uncertainty about investment and head count plans.
The 2025 tax bill extended tax cuts and reinstated subsidies for small businesses. The main changes to these provisions include:
Some of these provisions should boost capital spending by small businesses.
According to the Census BTOS, in the five most AI-exposed industries, the share of firms that report having integrated AI into their regular operations in 2025 is significantly lower for small businesses, which may suggest that they are not as well positioned to benefit from an AI-driven productivity boost.
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. This article is not a product of Goldman Sachs Global Investment Research. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed. You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format without the express written consent of Goldman Sachs. This foregoing restriction includes, without limitation, using, extracting, downloading or retrieving this information, in whole or in part, to train or finetune a machine learning or artificial intelligence system.
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