Small-business confidence took a hit in September as rising borrowing costs, stubborn inflation, and hiring difficulties left owners increasingly cautious about expanding.
The National Federation of Independent Business (NFIB) said its Small Business Optimism Index fell 0.8 points to 97.9, missing the 98.2 estimate and slipping below its 52-year average of 98.0.
The reading marked a three-month low, down from 98.7 in August, with six of the index's 10 components declining.
Only 7% of owners said it was a good time to expand, down 5 points, while those expecting better business conditions fell to a net 6%.
Their assessment of current conditions also weakened. The share describing business health as "fair" rose 7 points to 35%, while those reporting "good" conditions fell 9 points to 48%.
Meanwhile, the Uncertainty Index climbed to 90, well above its historical average of 68.
Hiring remains a headache
Finding qualified workers remains the biggest challenge for small businesses. Labor quality or availability was the most frequently cited problem for a third consecutive month, with 26% of owners naming it their top concern, up 3 points.
Inflation followed at 20%, rising 4 points from August and nearly three times its historical average of 7%.
Hiring activity weakened despite the continued shortage of qualified candidates. Some 51% of owners were hiring or attempting to hire, down 5 points, while 45% reported few or no qualified applicants.
Still, a net 17% plan to add jobs over the next three months, unchanged from August. Actual employment changes remained at a net -7%, the weakest since June 2025, while the share reporting unfilled openings fell 3 points to 32%.
Borrowing costs add pressure
Financing is becoming another headache. The average interest rate on short-term loans climbed 0.7 percentage points to 8.2%, while a net 8% of regular borrowers reported paying higher rates, the largest share since June 2025.
Businesses are also preparing to pass more costs on to customers. A net 31% of owners plan to raise prices, the highest since June, while inventory gains fell to a net 10%, their lowest level since September 2024.
NFIB chief economist Bill Dunkelberg said owners are taking a cautious approach as they navigate higher costs, borrowing rates, and persistent hiring challenges.
Although the survey focuses on privately owned businesses, its findings offer investors a glimpse into pressures that can also affect smaller publicly traded companies.
Many smaller firms rely on floating-rate debt, making rising borrowing costs particularly important for investors tracking how higher yields are affecting businesses.
The NFIB index is generally a secondary economic indicator, and readings close to expectations rarely move interest-rate markets on their own.
For small-cap investors, September's report suggests that rising costs and weaker confidence are squeezing margins, even if the numbers don't yet point to an outright contraction.
