At A Glance
As sole proprietors and microbusinesses continue to account for a growing share of the small business economy, lenders may need to remain agile in balancing portfolio growth with disciplined underwriting and risk management strategies.The U.S. small business landscape is undergoing a structural transformation — and commercial lenders may need to rethink what a “small business borrower” looks like
According to Experian’s May 26th, 2026 Commercial Pulse Report, new business formations remain at historically elevated levels, averaging approximately 450,000 per month since the pandemic. That pace represents a 54% increase compared to pre-pandemic averages from 2018 and 2019.
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According to Experian’s latest Commercial Pulse Report, new business formations remain at historically elevated levels, averaging approximately 450,000 per month since the pandemic. That pace represents a 54% increase compared to pre-pandemic averages from 2018 and 2019.
But perhaps more importantly, the composition of those businesses has changed dramatically.
In early 2026, approximately 93% of newly formed businesses were sole proprietorships, up from 85% in 2018. Many of these businesses have no employees, limited operating history, and different borrowing behaviors than the traditional small businesses lenders historically underwrote.
That shift is creating a fundamentally different commercial credit environment.
A Different Kind of Small Business Owner
Historically, many small business lending models were designed around businesses with employees, established operations, recurring revenue streams, and longer credit histories. Today’s wave of new businesses often looks very different.
Many newer firms are being launched by individuals pursuing consulting work, freelance opportunities, side businesses, creator-economy income streams, or post-retirement self-employment. These businesses may operate leaner, carry lower fixed costs, and rely more heavily on revolving credit products rather than traditional financing structures.
In many cases, the business owner and the business itself are financially intertwined.
That evolution matters because underwriting a sole proprietor is not the same as underwriting a mature operating company.
The rise in sole proprietorships is being driven by several long-term labor force and demographic trends now reshaping the U.S. economy.
Demographic Shifts Are Driving Entrepreneurship
One of the most important forces behind the surge in sole proprietorships is the aging U.S. population.
By 2050, individuals aged 55 and older are projected to represent nearly 40% of the total U.S. population. At the same time, Americans are increasingly working later in life. Labor force participation among older workers has steadily increased over the past two decades, while participation among younger workers has trended lower.
Retirement itself is also evolving.
Many retirees are no longer fully exiting the workforce. Instead, they are remaining economically active through part-time consulting, contract work, side businesses, and self-employment arrangements. According to research highlighted in Experian’s report, 59% of workers expect to continue working during retirement, while 61% of recent retirees express interest in continued employment.
These trends are contributing to a growing segment of “microbusinesses” — businesses with few or no employees operating primarily around the skills, experience, or services of an individual owner.
At the same time, broader workplace dynamics are also influencing entrepreneurial activity.
Employee Engagement Is Falling
According to Gallup, employee engagement in the U.S. and Canada declined to 31% in 2025, down from post-pandemic highs. Gallup estimates that low engagement costs the global economy nearly $10 trillion in lost productivity.
Younger workers in particular appear increasingly affected by workplace stress, burnout, and changing expectations around flexibility and career mobility.
As a result, more individuals may be pursuing alternative work arrangements, independent income streams, or self-employment opportunities.
The side-hustle economy continues to expand as well. A recent PYMNTS study found that nearly 20% of workers engaged in regular side work during the previous six months.
Collectively, these labor force dynamics are reshaping not only how Americans work, but also how small businesses are formed, financed, and evaluated from a credit perspective.
Commercial Credit Usage Looks Different
Experian data shows meaningful differences in how smaller and larger businesses use commercial credit.
Smaller businesses and sole proprietors rely more heavily on commercial credit cards, while larger firms tend to utilize a broader mix of leases, lines of credit, and term loans.
Businesses with four or fewer employees received average commercial card credit lines of roughly $8,900 in 2025. By comparison, businesses with more than 100 employees averaged approximately $29,500 in new commercial card credit lines.
Even when loan origination rates appear similar across business sizes, loan amounts differ substantially. Businesses with fewer than four employees averaged approximately $119,000 in term loan originations, while larger businesses averaged closer to $268,000.
Risk performance differs as well.
Larger firms generally continue to demonstrate lower delinquency rates and stronger commercial credit scores, reflecting greater operational scale, more established financial histories, and broader access to capital.
Why Risk Models May Need to Evolve
For lenders, these shifts present both opportunity and complexity.
The surge in new business formation creates potential growth opportunities across commercial credit markets. However, many of today’s borrowers may not fit historical underwriting assumptions.
Traditional business risk models often relied heavily on factors associated with mature operating businesses — payroll size, years in business, trade depth, and established commercial borrowing history.
Today’s newer firms may instead require a more blended view of risk that incorporates both commercial and consumer-level behaviors, cash flow dynamics, and alternative indicators of financial stability.
As sole proprietors and microbusinesses continue to account for a growing share of the small business economy, lenders may need to remain agile in balancing portfolio growth with disciplined underwriting and risk management strategies.
The definition of “small business” is evolving — and commercial risk models may need to evolve alongside it.
Learn more
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