‘Everyone is hunkering down.’ The affordability crisis is rattling mom-and-pop shops

By Matt Egan, CNN

New York (CNN) — Surging import costs. Mounting payroll and healthcare expenses. A shortage of affordable loans. And a stressed-out workforce. Small businesses are facing mounting pressure from America’s affordability crisis.

Doug Scheffel, owner of a family-run ETM Manufacturing in Massachusetts, laid off about a quarter of his employees in April as the Trump administration’s haphazard tariff rollout dented demand for the machine parts and sheet metal his company sells.

“Everyone is hunkering down and building up cash. It’s never been this bad,” Scheffel told CNN in a phone interview. “It’s very uncertain and impossible to plan in this environment.”

Small businesses are the backbone of the US economy, accounting for the vast majority of total businesses in the nation, nearly half of all employees and the bulk of the job growth.

Like other small businesses, ETM Manufacturing can’t take advantage of growth opportunities because financing is so expensive. The average rate on a new urban small business term loan was over 7% at the end of last year, according to the Kansas City Fed, but many small businesses face rates well north of 10%.

“It’s infuriating,” Scheffel said.

High prices at the grocery store and elsewhere have left some of ETM’s employees preoccupied with their own finances.

“Most of our employees are distracted. They’re worried about putting food on the table and buying shoes for their kid,” Scheffel said. “Bad stuff happens when they’re not totally focused.”

Scheffel’s employees are hardly alone. About one in four US households are living paycheck to paycheck, meaning they are spending over 95% of their income on necessities like housing and groceries, according to estimates from Bank of America.

The mood among mom-and-pop shops on Main Street is mixed. While small business owners tell CNN they are hopeful about the future and excited about how artificial intelligence can help them, some are concerned about the headaches incurred by the ever-changing trade war and high costs.

Bryan Pate, CEO of San Diego-based PT Motion Works, an exercise equipment company that sells elliptical bikes, GIBBON SlackBoards and Indo Board balance boards, told CNN that his business is struggling to keep up with rapidly rising healthcare costs.

Over the past two decades, the average cost of single coverage health insurance has surged by 120% for companies with fewer than 50 employees, according to the National Federation of Independent Business (NFIB), a nonprofit that advocates for small businesses.

“It’s unbelievable how much healthcare has gone up,” Pate said, noting this is a big disadvantage small businesses have against large corporations. “It’s an unfair barrier to hiring.”

‘So much anxiety’

Those healthcare and payroll expenses add to the pressure from the historic tariff hikes under President Donald Trump.

“We just don’t know what the guy is gonna do. It creates so much anxiety and time-wasting,” Pate said of Trump’s evolving tariff policies.

Trump has raised tariffs on US imports to an average rate of 16.8%, the highest since 1935, according to estimates released by The Budget Lab at Yale on Monday.

Pate said his businesses have been hammered by tariffs — including the 20% levy on Taiwan, where its bikes are manufactured.

Ironically, the tariffs are wiping out some US manufacturing jobs.

Pate said his company recently ended contracts with seven assembly workers based in San Diego and now employs workers in Mexico instead. And Pate plans to raise prices on bikes to offset the cost of tariffs but worries that will erode demand.

“It’s been economically painful, and long-term, if tariffs stay where they are, it’s just not going to work,” he said.

Troy Rackley, CEO at The Next Level of Performance, a Sarasota, Florida-based water treatment technology company, told CNN on the sidelines of the Goldman Sachs 10,000 Small Businesses Summit in Washington he has had to raise prices on some of his products due to US tariffs on imports from Australia and China.

Rackley dismissed the argument that exporting countries are paying US tariffs and hopes the Supreme Court rules against the Trump administration’s use of emergency powers to justify its global tariffs.

“China, Mexico and Canada don’t pay. I’m the one that’s paying for it,” Rackley said. “I pay taxes on my income, and now I have to pay additional taxes on what I bring in.”

High borrowing costs

Khari Parker, a graduate of the Goldman Sachs small business program and co-founder of Connie’s Chicken and Waffles in Baltimore, isn’t facing any tariff trouble, but he’s struggling to find affordable capital.

“We’ve being hit with very, very high rates of 20% to 30%,” Parker said.

The Trump administration has worked to support small businesses by providing capital through the Small Business Administration (SBA).

Since Trump took office, the SBA estimates it has approved more than 58,000 small business loans worth over $32 billion. For fiscal 2025, which closed at the end of September, the SBA said it guaranteed a record-setting $44.8 billion of small business loans.

Small business optimism increased sharply after Trump took office before retreating after Trump’s tariff plans spooked financial markets, according to the NFIB. Optimism later recovered and is currently slightly above its 52-year average.

Immigration crackdown shrinks labor pool

One recurring struggle for small businesses like Parker’s: attracting talent.

“It’s very hard to find workers. We can’t always offer the same competitive benefits or pay that larger businesses can,” Parker said.

For some companies in construction, those challenges have been amplified by the immigration crackdown.

“A lot of the workforce is nervous from all the stuff going on with immigration,” said Antonio McMillion, president of Maryland-based developer MFP Management & Construction.

McMillion said his company has been forced to hire more expensive workers, raising their labor costs on some projects by up to 40%.

“Hopefully we can pass on the price to the client, but that could also mean you don’t get the job,” he said.

Pate, the CEO of PT Motion Works, is very frustrated by tariffs but remains optimistic about the future because of his employees’ resilience in the face of uncertainty.

“It could be very depressing and demoralizing,” he said, “but no one is throwing in the towel.”

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