‘Everyone is hunkering down.’ Affordability crisis rattles mom-and-pop shops

new York
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Increase in import costs. Increase in payroll and health spending. A shortage of affordable loans. And a stressed workforce. Small businesses face increasing pressure from the affordability crisis in the United States.

Doug Scheffel, owner of family business ETM Manufacturing in Massachusetts, laid off about a quarter of his employees in April as the Trump administration’s haphazard rollout of tariffs dampened demand for the machine parts and sheet metal sold by his company.

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

Small businesses are the backbone of the U.S. economy, accounting for the vast majority of the nation’s total number of businesses, nearly half of all employees, and the bulk of job growth.

Like other small businesses, ETM Manufacturing cannot take advantage of growth opportunities due to the high cost of financing. The average rate on a new term loan for urban small businesses was above 7% at the end of last year, according to the Kansas City Fed, but many small businesses face rates well above 10%.

“It’s infuriating,” Scheffel said.

High prices at the grocery store and elsewhere have left some ETM employees concerned about their own finances.

“Most of our employees are distracted. They’re afraid to put food on the table and buy shoes for their child,” Scheffel said. “Bad things happen when they’re not fully focused.”

Scheffel employees are not alone. According to Bank of America estimates, about one in four American households live paycheck to paycheck, meaning they spend more than 95% of their income on necessities like housing and groceries.

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

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

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

“It’s amazing how much health care has grown,” Pate said, noting that this is a major disadvantage for small businesses compared to large companies. “It’s an unfair barrier to hiring.”

These health and payroll costs come on top of pressure from historic tariff hikes under President Donald Trump.

“We just don’t know what this guy is going to do. It creates so much anxiety and a waste of time,” Pate said of Trump’s evolving tariff policies.

Trump raised tariffs on U.S. imports at an average rate of 16.8%, the highest rate since 1935, according to estimates released Monday by Yale’s Budget Lab.

Pate said his companies have been hit with tariffs, including a 20% levy on Taiwan, where his bikes are made.

Ironically, the tariffs eliminate some U.S. manufacturing jobs.

Pate said his company recently terminated contracts with seven San Diego-based assembly workers and now employs workers in Mexico. And Pate plans to raise bike prices to offset the cost of fares, but fears it will erode demand.

“It’s been economically painful, and in the long run, if rates stay where they are, it just won’t work,” he said.

Troy Rackley, CEO of The Next Level of Performance, a water treatment technology company based in Sarasota, Fla., told CNN on the sidelines of Goldman Sachs’ 10,000 Small Business Summit in Washington that he had to raise prices on some of his products because of U.S. tariffs on imports from Australia and China.

Rackley rejected the argument that exporting countries pay U.S. tariffs and hopes the Supreme Court will rule against the Trump administration’s use of emergency powers to justify its global tariffs.

“China, Mexico and Canada are not paying. I’m paying for this,” Rackley said. “I pay taxes on my income, and now I have to pay additional taxes on what I bring in. »

Khari Parker, a graduate of Goldman Sachs’ small business program and co-founder of Connie’s Chicken and Waffles in Baltimore, doesn’t face any pricing issues, but he has difficulty finding affordable capital.

“We’re facing very, very high rates, 20 to 30 percent,” 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 more than $32 billion. For fiscal year 2025, which ended at the end of September, the SBA said it guaranteed a record $44.8 billion in small business loans.

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

A recurring challenge for small businesses like Parker’s: attracting talent.

“It’s very difficult to find workers. We can’t always offer the same benefits or competitive salaries as big companies,” Parker said.

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

“A lot of the workforce is nervous because of everything that’s 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, increasing labor costs on some projects by as much as 40%.

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

Pate, the CEO of PT Motion Works, is very frustrated with the 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 throws in the towel.”