Small-Business Banking Has a Segmentation Problem

The term “small business” has traditionally functioned as a sort of economic shorthand. Banks, payment companies, FinTech firms, and even policymakers spoke about small-and-medium-sized businesses (SMBs) as if they formed a single commercial bloc moving through the economy at roughly the same speed and under roughly the same conditions.

But new findings in the May 2026 edition of the Main Street Health Index by PYMNTS Intelligence reveal that Main Street is no longer moving as one economy.  A contractor in Texas, a healthcare practice in Arizona, and a retailer in the Northeast may all technically qualify as small businesses while facing entirely different economic conditions, labor markets and consumer demand environments.

The report found that growth for restaurants and brick-and-mortar retail businesses is slowing or contracting, while healthcare providers, contractors, fitness businesses and professional services firms continue to see their growth expand. The result is a fragmented SMB economy with sharply different operating models, risk profiles and financial infrastructure needs.

To stay ahead of this shift, financial services firms and FinTech providers are increasingly rethinking their underwriting, liquidity management, and embedded financial products for the next generation of SMB clients.

End of the Main Street Monolith

The small-business economy is fragmenting into divergent sectors with sharply different growth trajectories, operating pressures, and financial infrastructure needs. Restaurants and retail, both traditionally considered foundational pillars of the small-business economy, have seen their business growth soften.

Eating and drinking establishments contracted 2.4% during the 12-month period measured by the index, while retail fell 2.0%. Restaurant wages declined 1.3%, making it the only segment in the index to post falling compensation. Retail business counts also dropped 1.9%, the steepest decline among the sectors tracked.

Fitness and recreational sports clubs, however, expanded 3.2% over the same period. Building contractors and remodelers grew 2.2%, while healthcare providers increased 2.0%. Professional services firms, including lawyers, consultants, accountants and real estate professionals, kept their spot as the highest-indexed category.

The emerging distinction between Main Street’s myriad storefronts matters because different sectors increasingly operate with entirely different cash-flow structures, borrowing needs, payroll dynamics and capital investment cycles. A contractor managing months of booked renovation work no longer represents the same credit profile as an independent retailer facing declining foot traffic. Likewise, a healthcare practice with recurring reimbursement cycles behaves differently from a restaurant dependent on discretionary spending.

The next generation of SMB finance is likely to revolve around segmentation rather than aggregation. Dynamic underwriting, sector-specific credit models, cash-flow-based lending, embedded treasury products and real-time liquidity tools are all emerging from the same realization: Main Street is no longer one economy.

Read the report: Why Main Street Is Splitting: The Data Behind Small Business Winners and Losers

Future of SMB Finance Is Fragmented but Embedded

The broader lesson is that Main Street is reorganizing around a different and new economic logic that centers on cash flow, and not the traditional balance sheet history. The shift is accelerating demand for sector-specific financial products.

Payment processors, vertical SaaS providers, and FinTech lenders already possess large amounts of operational data from the businesses they serve. That data can allow them to build lending and treasury products calibrated to the rhythms of individual industries.

The broader Main Street economy remains enormous. PYMNTS data shows Main Street businesses account for 4.3 million establishments, 38.9 million workers, and approximately $2.5 trillion in annualized wages. They represent 36% of private-sector establishments and 29% of private-sector employment nationwide.

But scale no longer means uniformity. It is several economies moving at different speeds. And financial institutions that adapt to that reality fastest may end up better positioned to define the future of small-business banking.