American small businesses are grappling with a significant decline in profitability as escalating gas prices and labor costs erode margins. A new report from the Bank of America Institute reveals that April 2025 saw the sharpest drop in small business profitability in two years, with a 1.3% decline.
Rising Costs Strain Small Businesses
The surge in gas prices, driven by the Iran conflict, has severely impacted small businesses, which spent 31% more on gasoline in April compared to the previous year. The average price of gas reached $4.53, a 43% increase from 2024, according to AAA. The Strait of Hormuz, a critical shipping lane for energy, was disrupted by the conflict, exacerbating the situation.
'Small business sales appear to be slowing despite strong consumer spending growth,' analysts noted in the report.
Entrepreneurial Spirit Under Pressure
Despite the challenges, Americans continue to start businesses at a record pace. In 2025, new business applications averaged 470,000 per month, a 66% increase over pre-pandemic levels. This entrepreneurial surge highlights the resilience of the U.S. economy, even as small businesses face mounting pressures from inflation and labor constraints.
The bottom line: While America’s capacity for entrepreneurialism remains robust, rising costs and geopolitical instability are testing the limits of small businesses nationwide.