I think the biggest problem that small business are facing these days is the cost of doing business altogether. Generally, prices are rising, regulations are increasing in number and negative impact on doing business, purchasing power is decreasing, and uncertainty due to Goverment (sic Obama Administration) actions is increasing. Right now, the overall economy is playing an integral part in most of the small business' failure. It leads to lower revenues and lower profit margins and thus they have to go out of the business.
One other thing that most of the small entrepreneurs face is lack of skills, knowledge, know-how and customs for the specific industry they're working in. Although being innovative has its advantage sometimes when you're taking on national level companies, you need to either know or quickly learn the rules of the games.
Failures are also a big problems for small businesses. Motivation is a great factor against it. How well you take the failures whether small or big and so on. You'd hardly find any business without any setbacks. All those garage dreams didn't became multinational corporate giants overnight. They had setbacks and failures. The abilities, skills and unyielding attitude of these successful entrepreneurs led them to what they are now.