Russian Small Businesses Face Survival Crisis Amid Ongoing War

What Happened

According to the Ukrainian Foreign Intelligence Service, small businesses in Russia are facing unprecedented challenges due to the ongoing war against Ukraine. Reports indicate that the number of new companies has plummeted by 26.8% year-on-year in the first quarter of 2026.

Many entrepreneurs now perceive their chances of survival as bleak, with one in five estimating a survival probability of 30% or less. Furthermore, it is anticipated that a third of micro, small, and medium-sized enterprises (MSMEs) are at risk of closure in the near future.

Key Details

The report highlights multiple pressures that small businesses are currently facing. For instance, customer and contractor debts have exceeded 8 trillion rubles this spring, marking a significant warning sign of the financial exhaustion permeating the economy.

Simultaneously, high-interest loans ranging from 25% to 30% annually contrast starkly with the average profit margin of small businesses, which stands at only 10% to 15%. As such conditions prevail, entrepreneurs are finding it more beneficial to deposit funds rather than invest in business ventures.

The agricultural sector, in particular, has been significantly impacted. Profitability in agriculture has dropped from 23% before the full-scale war to 15% in 2025. In that same year, the sector produced goods valued at 10.63 trillion rubles but faced record losses exceeding 100 billion rubles.

Annual exits from the market include approximately 6,000 to 7,000 farms. New taxation reforms have exacerbated the situation, raising the VAT threshold to 15 million rubles and narrowing the patent system, leaving small entrepreneurs with minimal room for growth.

Tax authorities noted a total drop in new businesses by 20% in 2025. Additionally, 75% of micro and small enterprises reported insufficient profits to facilitate any growth. The labor market is also in a severe state of decline, with mobilization, emigration, and stricter migration laws leaving many regions, particularly border areas, critically short of workforce.

Over 80,000 capable workers from Belgorod have emigrated in recent times.

Why It Matters

The difficulties facing small businesses in Russia reflect broader economic instability fueled by the conflict with Ukraine. With increasing operational costs and falling demand, these enterprises have become crucial for employment amidst an unforgiving environment. As major corporations and state contractors gain advantages from the war, small businesses are left struggling with burdens of regulation and debt.

Background

In recent years, Russia has experienced significant shifts in its economic landscape, largely driven by the consequences of military engagement in Ukraine. Factors such as reduced energy revenues and increasing pressure from international sanctions have left many small businesses on the brink of extinction.

Entrepreneurs are becoming increasingly aware of the disparity between large state-controlled entities and their struggles, emphasizing a vital narrative of inequality inherited from wartime policies. The current economic climate demands urgent attention to address systemic changes that could alleviate the pressures faced by small businesses, crucial for the country's employment landscape.