Challenges and Obstacles Aside, Small Businesses Are Feeling Confident Again

Small business owners have the highest confidence rates in three years despite facing challenges and obstacles, according to Counterpart’s annual “Small Business Insights Report,” which surveyed more than 300 business leaders.

This surging business confidence is spurring an uptick in hiring, and 77% of respondents are ‘very confident’ in their understanding of employee-related risks despite the fact that more than a third faced employee lawsuits last year.

Litigation is bigger, costlier, and less forgiving than in years past. Small businesses that fail to expand their coverage, monitor exposures, and embed preventive practices into their operations risk becoming tomorrow’s cautionary tales. The disconnect between business optimism and risk exposure is reshaping how small businesses navigate growth in 2025.

To gather the data, Counterpart commissioned a survey of 302 small business owners and CEOs across the United States with a minimum of 25 and a maximum of 499 employees in July of this year. The results were tabulated and announced in late October.

Half of Small Businesses Gamble Without Coverage

While 71% of the leaders claim they’re “very confident” in their insurance protection, that confidence appears to be masking distinct exposure gaps. More than one in three small business leaders surveyed have faced employee lawsuits in the past year, yet only 58% carry employment practices liability insurance, and only 42% have directors and officers coverage.

Legal battles are also becoming more severe: Lawsuits costing over $1 million surged fivefold year-over-year, rising from 1.4% to 7% of reported cases by survey respondents. The data reveals a stark new reality where just one uninsured claim can be the difference between sustained growth and sudden insolvency.

Technology as an Equalizer

Technology continues to play a transformative role in small business confidence. Tools that were once expensive or complex—such as AI-driven marketing automation, cloud-based financial management, and e-commerce platforms—are now affordable and easy to integrate. Artificial intelligence, in particular, is allowing smaller firms to compete with larger players by improving customer engagement, streamlining operations, and identifying growth opportunities.

The rapid adoption of digital payment systems and cybersecurity tools has also made it easier for small businesses to reach new markets and build trust with customers. In short, technology has leveled the playing field and given entrepreneurs more control over their growth and resilience.

Consumer and Community Support

Another major factor boosting small business confidence is the continued shift in consumer attitudes. Shoppers are more inclined than ever to “buy local” and support independent brands that reflect their values, authenticity, and community engagement. This trend has been reinforced by social media, where local businesses have found effective, low-cost ways to connect with their audiences.

The Tariff Time Bomb

Despite maintaining record optimism about their business prospects, small businesses face a complex economic landscape. Respondents identified their biggest challenges as:

• Inflation: 68%
• Tariffs: 62%
• Supply chain disruptions: 44%

As economic policies, such as tariffs, continue to shift, nearly two-thirds of respondents believe a recession is possible within the next 12 months and are preparing accordingly.

“Small businesses are walking a tightrope between unprecedented opportunity and escalating risk. Many are adapting to the new challenges by embracing AI, shifting back to an office-centric culture, revising their hiring strategy and updating insurance coverage. We continue to witness the incredible resilience of small businesses, even as their risk exposures grow more complex by the day.”— Tanner Hackett, CEO of Counterpart

Barcelona, Spain - 18th July 2025: Shipping containers and cargo ships are seen in the port. Concept of trade war and maritime trade and tariffs

(Davide Bonaldo/davide bonaldo - stock.adobe.com)

The Next AI Frontier: Main Street

Small businesses are no longer afraid of AI. In fact, they’re operationalizing it faster and more pragmatically than many large enterprises. 92% of small business respondents have now integrated the technology into their operations, a dramatic shift from 2023, when only one in five respondents used the tool.

Small businesses have discovered AI’s real power as a productivity multiplier. Seven in 10 respondents now rely on it for automation, while over half leverage it for research and analysis. With over one-third (35%) of businesses expecting no workforce impact from AI in the next five years, AI is seen as a new helping hand for SMB operations rather than a disruptive force.

Remote Work Retreats as Hiring Power Shifts to Employers

In another change, nearly half of the respondents (49%) now require full-time office presence, up 7% from 2024, as businesses prioritize collaboration and culture over flexibility. This shift comes as small businesses’ recruitment concerns fell 8% and retention challenges dropped 16%, signaling that the current job market favors companies over candidates.