Building a Stronger Small Business Economy After the Midterms

By Spencer Lau, Head of Next Street Institute

Last week’s midterm elections marked a significant shift in American politics. Voters delivered a clear call for change, reshaping the balance of power in Congress and electing new leadership in state capitals nationwide. 

The election spotlighted widespread concerns about rising prices and economic uncertainty, along with longstanding challenges, including unequal access to opportunity and widening income and wealth inequality. For small businesses, these pressures shape everyday decisions about hiring, serving customers, and investing in growth. 

The next Congress and newly elected Governors have an opportunity to put small businesses at the center of the nation’s economic agenda, advancing policies that help entrepreneurs start, operate, and grow their businesses. 

Growing Pressures Facing Small Businesses 

Main Street businesses face rising operating costs and uneven consumer spending. Manufacturers and industrial suppliers see new opportunities as domestic production grows, but many struggle to find skilled workers, manage shifting supply relationships, and secure financing to expand. Startups face a venture capital market increasingly concentrated in AI and larger deals. 

Federal policies have added to these pressures. As I wrote in Fast Company, broad tariffs raise costs for small businesses, particularly manufacturers, that depend on cross-border supply chains. The U.S. conflict in Iran has pushed up fuel and transportation costs. Expired Affordable Care Act subsidies have raised healthcare costs for entrepreneurs and workers who buy their own insurance, while new Medicaid restrictions raise concerns about future coverage. 

Together, these developments have made it harder for small businesses to plan, invest, and grow. The Small Business & Entrepreneurship Council's October 2026 survey identified inflation as the leading concern among small business owners, alongside worries about energy costs and access to capital. 

Yet small businesses are also central to addressing these challenges. Entrepreneurship creates pathways to economic mobility and wealth creation, while growing businesses create jobs and strengthen local economies. Next Street's research on America's suppliers also found that small and mid-sized businesses account for nearly nine in ten firms in key industrial sectors, and closing their productivity gap with larger firms could generate up to $292 billion in additional annual GDP.

A Congressional Agenda for Small Business Growth 

Congress should address immediate cost pressures while strengthening the conditions for long-term small business growth. This requires action to improve affordability, encourage investment, review recent policy changes, and expand access to capital. 

• Reducing small business costs: Lawmakers should prioritize policies that reduce costs for small businesses and their employees. Bipartisan ratepayer protection legislation offers one approach to protecting small businesses and households from bearing infrastructure costs associated with large data centers and other industrial sites. On healthcare, lawmakers can consider ways to preserve affordable coverage and expand options for small employers, including CHOICE Arrangements, which let businesses help employees purchase individual insurance.  

• Encouraging small business investment: Congress can build on the 2025 One Big Beautiful Bill Act’s tax reforms for equipment and research expenses, while considering bipartisan proposals to extend the CHIPS Act investment tax credit and expand its eligibility to more domestic suppliers. Pairing these incentives with financing and technical assistance can help smaller manufacturers participate in America’s reindustrialization. 

• Reviewing administrative policy changes: Congress should review recent Small Business Administration (SBA) actions and the implications for small business access to financing and federal contracting. Since March 2026, businesses with any ownership interest held by a green card holder have been ineligible for SBA 7(a) and 504 loans. Proposed changes to business size standards could also redefine which companies qualify for federal small business programs and contracting opportunities. 

• Expanding access to capital: Policymakers can build on Small Business Investment Company (SBIC) reforms, expanded SBA financing limits, and opportunities to renew loan fee relief for manufacturers. Expanding acquisition financing can also help entrepreneurs take over existing businesses and preserve local jobs. 

  
  

Governors Can Turn National Investment into Local Opportunity 

Governors have an equally important role in turning national priorities and investments into opportunities for local businesses and communities. New administrations can strengthen small business ecosystems, shape regional development, and advance new approaches to entrepreneurship and business growth. 

• Strengthening state small business ecosystems: Governors can reinforce business support networks, deploy remaining State Small Business Credit Initiative (SSBCI) resources, and develop longer-term financing tools. They can also connect smaller suppliers with major companies investing in their regions and align workforce training with local hiring needs. 

• Centering small business in regional development: As states attract AI data centers and other industrial investments, state and local leaders should ensure that small businesses have a voice in community benefits agreements and other development commitments. With some states considering moratoriums on data center development, policymakers have an opportunity to revisit how projects are approved, address energy and infrastructure concerns, and ensure that local suppliers, contractors, and workers benefit from these investments. 

• Advancing the future of small business: States have long served as laboratories for new ideas. They can help small businesses enter emerging industries, adopt AI and other technologies, and navigate ownership transitions amid the “silver tsunami” of retiring business owners. States can also expand financing and advisory support for business succession, acquisitions, and employee ownership. 

For the next Congress and newly elected Governors, the challenge is to turn these priorities into meaningful action. A stronger small business economy will require more than addressing today's cost pressures. It will mean ensuring that entrepreneurs and businesses of all sizes can invest, compete, and share in the country's economic future.