Smallest Businesses Fall Behind as Main Street Goes Digital

Labor Day finds Main Street approaching the fourth quarter with more ways to sell, get paid and source goods than it had four years ago. It also finds a substantial gap between the financial position of the smallest businesses and their larger SMB counterparts.

Our PYMNTS Intelligence SMB Growth Monitor puts numbers around that divide. In February, 51% of small and medium-sized businesses (SMBs) reported higher revenue than a year earlier. Businesses generating more than $1 million annually had recorded average revenue growth of 13.7% from 2020 levels by January 2025. Businesses with less than $150,000 in annual revenue grew just 0.6%.

Survival expectations show an equally large spread. Eighty-two percent of SMBs surveyed in February said they were very or extremely confident they would still be operating in two years. Confidence reached 93% among businesses with more than $1 million in annual revenue and fell to 73% among those below $150,000. PYMNTS Intelligence said the 20-percentage-point gap was the widest divide in its four-year dataset.

As 2025 gave way to the current year, 34% of SMBs said rising costs for goods and services were hurting their financial health. Microbusinesses reported greater exposure to cash-flow strain and late payments, while 26% of mid-sized SMBs cited an inability to hire new employees as a potential threat to surviving the following two years.

Businesses serving households with ample discretionary income have more room to sell nonessential goods and services or raise prices. Merchants dependent on customers with tighter budgets have less latitude when their own costs rise.

Inflation continues to complicate that equation. The Bureau of Labor Statistics’ July Consumer Price Index report showed consumer prices 3.4% higher than a year earlier. Food prices were up 3%, while energy prices were 14.7% higher. Core prices, excluding food and energy, increased 2.5%.

For merchants with limited pricing power, higher costs can leave a choice between absorbing the increase and sacrificing margin or passing it to customers who may already be cutting discretionary spending. PYMNTS Intelligence found rising costs for goods and services were the most frequently cited drag on SMB financial health, ahead of labor costs, competition and supply-chain disruptions.

Main Street businesses have spent the past several years adding other ways to produce revenue.

Sixty-one percent of SMBs surveyed in February sold through physical stores, while 57% sold through their own websites. PYMNTS Intelligence only began measuring owned websites as a separate sales channel in April 2024. By February 2026, website penetration was within 4 percentage points of physical stores.

Delivery aggregators, social media and owned mobile apps recorded some of the largest increases over the four-year tracking period. Among SMBs using individual channels in February, 61% of delivery-aggregator users reported higher sales through that channel, while 51% of businesses using owned mobile apps reported higher sales there.

A merchant that once depended primarily on local foot traffic can now combine a store with its own website, third-party marketplaces, social commerce or delivery. That flexibility does not eliminate weak demand, but it can widen the pool of customers available to a business and allow inventory and promotions to move among channels.

Payments have developed alongside those sales channels. Credit cards were accepted by 79% of SMBs both in stores and online in February. In-store debit acceptance increased to 79% from 73% in January 2022, while Apple Pay acceptance rose to 30% from 27%. Cash remained widely accepted, but its in-store penetration declined to 82% from 87%.

The changes give merchants more ways to complete a transaction regardless of where the customer encounters the business. They also make processing costs, settlement speed and cash availability more important as commerce spreads across stores, websites, apps and platforms.

Cross-Border Sourcing Reaches Main Street

International sourcing is also moving deeper into the SMB sector.

In the PYMNTS Intelligence Cross-Border Opportunity study, based on a February survey of 535 U.S. SMB decision-makers, found that 57% of U.S. SMBs purchased goods or production inputs overseas. International sourcing reached 42% even among companies generating less than $150,000 annually. It climbed to 59% among firms with $150,000 to $1 million in revenue and 73% among those generating $1 million to $10 million.

For a small retailer, restaurant or manufacturer, overseas sourcing brings currency conversion, payment fees and supplier settlement times directly into working capital management.

Forty-three percent of internationally active SMBs cited faster payment processing and settlement as the top improvement they wanted from cross-border providers. Thirty-seven percent cited lower fees and better foreign-exchange economics, while 32% identified security and fraud protection.

Main Street therefore enters the fourth quarter with two very different sets of numbers. The smallest SMBs have barely grown compared with their larger counterparts and report substantially lower confidence in their ability to survive the next two years. At the same time, SMBs have added digital storefronts, payment options and international suppliers that give them more control over where they find customers and how they manage their businesses.

For smaller firms, that flexibility will be tested by a consumer economy in which purchasing power is far from uniform. The businesses with the least financial cushion have also acquired more tools for reaching beyond the customers, payment methods and suppliers on which they once depended.