The State of Main Street Heading Into Small Business Week.

Despite the moniker attached to their segment, small businesses loom large in the American economy. 

And with the U.S. Small Business Administration (SBA) celebrating National Small Business Week starting Sunday (April 28), the staying power of entrepreneurship in the U.S. is top of mind for both small- to medium-sized businesses (SMBs) as well as the solution providers and financial institutions that service them.

“Small businesses are the engine of our economy and the heart and soul of our communities. They employ nearly half of all private sector workers and contribute to every industry. Getting them what they need to grow is one of the best investments our country can make,” the White House said in a Friday (April 26) statement.

After all, SMBs, which may only employ a handful or a few dozen people rather than the thousands of employees boasted by larger corporations and enterprises, make up 40% of the U.S. economy and represent 99.9% of all American businesses.

But this crucial business segment faces a myriad of challenges that range from economic uncertainties to regulatory burdens, to access to capital and managing the growing imperative for digital transformation.

That’s why, as National Small Business Week approaches, PYMNTS is taking a temperature check on the state of the SMB landscape. 

Read also: Young SMBs Can’t Find Enough Business Financing

Ensuring Access to Capital for Small Businesses 

Securing funding for starting or expanding a business can be difficult, especially for those without established credit or collateral. And while small businesses are the lifeblood of local economies, they often find themselves struggling to secure the capital they need to invest in their growth.

As the White House announcement noted, “Mom-and-pop businesses with only a handful of employees often need small loans of $100,000 or less, but not all banks offer them.”

“Underwriting small businesses isn’t simple,” Ryan Rosett, co-founder and CEO at Credibly, told PYMNTS, explaining that while having access to working capital is “imperative” for small businesses, there is a gap in the market for alternative lenders to fill. 

PYMNTS Intelligence has estimated only about 8.5% of SMBs have said that they’d found working capital loans from banks were readily available. More than half of respondents said coming into 2024 that they would consider tapping new financing. Of the companies mulling new financing, the data shows that more than 26% would consider using an online lender; about a third would use a large national bank.

Without access to financing, small businesses can struggle with daily operational realities and future-fit investments alike, making it challenging for them to enter new markets and compete with larger peers.

Navigating complex regulations at federal, state and local levels can also be a daunting and time-consuming exercise, particularly for small businesses with limited resources.

Financial institutions have a unique opportunity to bolster the resilience of small businesses by providing tailored financial tools and support, NCR Voyix Chief Product Officer, Digital Banking Doug Brown said in the new PYMNTS eBook, “The Implications of Uncertainty.”

Beyond basic banking services, banks and credit unions can offer advanced functionalities such as cash flow management, payroll capabilities, expense tracking and more. By integrating these features into their services, banking providers can empower small business owners to streamline their financial operations and make more informed decisions, Brown said.

Read also: Open Banking Allows More SMB Data to Be Used in Financing Decisions

Investing in Digital Transformation Has Big Impact for Small Businesses

With the cost of doing business only growing more expensive for Main Street SMBs, innovation and adaptability are becoming increasingly critical to staying competitive — and moving from a reactive stance to a proactive one. 

“We went through one of the most volatile macro environments … and I think many [SMBs] are now starting to think about going on the offensive,” Charles Zhu, vice president of product at Enigma, told PYMNTS in an interview posted in December.

By leveraging technology to streamline and modernize legacy processes, small businesses can enhance efficiency, reduce manual errors and improve their growth prospects.

Digital investments are particularly important given recent PYMNTS Intelligence that reveals consumers have grown to expect seamless digital convenience, but many are finding that smaller merchants fall short of their expectations.

The “2024 Global Digital Shopping Index: SMB Edition,” a PYMNTS Intelligence study commissioned by Visa Acceptance Solutions, revealed that in the United States, “consumers miss 55% of desired features” at SMBs.