Small businesses seeing revenues rise, but tariff threats loom: BofA

A new analysis by the Bank of America Institute finds that small businesses appear to be gaining financial momentum, though policy changes related to tariffs could spur inflation and with it a new challenge to profitability.

The Bank of America Institute’s report analyzed the bank’s small business account data and found that in the six-month period from August to January, deposit growth among small business clients surpassed total payments growth for the first time in three years.

“The positive is that revenues are rising and we’re seeing that for the first time over the past three years where deposits are outpacing payments, so that’s really good momentum entering 2025 and small business optimism is up,” Bank of America economist Taylor Bowley told FOX Business. “But that doesn’t mean that there isn’t still risk for cost pressures to curb small business enthusiasm and growth going forward.”

While inflation has slowed substantially since its 40-year high of 2022, it remains elevated and its impact on wages has contributed to continuing cost growth for small businesses.

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A new Bank of America Institute analysis found small businesses entered 2025 with positive financial momentum. (REUTERS/Brian Snyder/File Photo / Reuters Photos)

“Revenues seem to be rising, which is a really good thing because small businesses historically operate on pretty small profit margins,” Bowley said. “But the one thing is that costs don’t necessarily seem to be declining.”

Bowley said that payroll is one of the largest expense categories for small businesses and that wage inflation as it relates to payroll has been a key factor in rising costs faced by those companies, though workforce expansion may also be a factor.

“Wage inflation is not the sole driver in terms of what we’re seeing with payroll growth. It’s an indication that small businesses are still able to keep people on the payroll, and also potentially expand their labor force,” she said. 

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The Bank of America Institute’s data showed that despite continued cost increases, faster revenue growth allowed the small business inflow-to-outflow ratio – which the firm views as a proxy for small business profitability – to grow 1.5% year-over-year as of January. That metric had been negative last spring and only surpassed 1% in the fall.

Bowley said that with several of the Trump administration’s tariff plans still in flux and yet to be implemented, the bank’s data doesn’t currently reflect what those impacts will be. 

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She said that the uncertainty over tariffs makes it difficult to discern how small businesses will respond in terms of passing on those increased costs on to consumers in the form of higher prices.

“Small businesses are not the same as a large corporation, who might have a little bit more leeway in terms of determining how much of that price increase they would pass along to the consumer, whereas small businesses operate on pretty small profit margins,” Bowley said.

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Bowley noted that Bank of America Global Research team’s analysis currently sees trade, fiscal and immigration policy shifts as being mildly inflationary – though that impact would be variable between different sectors of the economy as tariffs, government spending reforms or immigration enforcement policies are implemented.