Each quarter, we partner with Barlow Research to survey small business and middle market owners across the country. These conversations give us a deeper understanding of how businesses are feeling about their financial health, challenges and plans for future growth.
Here’s a quick look at what we learned this quarter and how we’re helping businesses navigate what’s ahead
How are small businesses feeling about financial conditions?
Small businesses’ optimism regarding their overall financial conditions has inched up since Q4 2025. That slow but steady improvement is aligned with middle market companies, whose financial outlook has also strengthened slightly. Both groups are expressing greater confidence in the U.S. economy overall.
Despite this growing optimism, the past 12 months have been challenging for many small businesses: 34% of owners report declining sales, while only 24% have seen sales increase. This marks a shift in a negative direction compared with Q4.
In contrast, middle market businesses report a similar share of increasing and decreasing sales as they did last quarter, indicating more stability in their recent performance and expectations.
Where are small and middle market businesses investing most of their borrowed capital?
Similar to last quarter, expectations to apply for additional credit continue to rise. Among small business owners who expect to borrow, 60% plan to use funds for working capital, highlighting the focus on supporting day‑to‑day operations and maintaining stability.
Although middle market business owners are still hesitant to seek additional credit, confidence is rising with expectations to apply increased by 5% from the previous quarter. This also suggests rising interest in supporting long-term business growth.
What are businesses’ top concerns in Q1?
For small businesses, rising operating costs are the top concern.
- 28% are extremely concerned
- 34% are moderately concerned
Government policies and regulations follow closely behind, with many owners unsure how regulations could affect their operations.
In the middle market, the cost of doing business remains the number one issue as well. However, cybersecurity and fraud concerns are nearly as prominent, reflecting an increased threat for larger and more digitally integrated companies.
Are business owners confident in 2026?
Small and middle market business owners report a similar level of confidence in their sales outlook compared to last quarter, with no significant shift in those expecting sales to increase versus decrease. Sentiment remains consistent across the board.
Where are businesses planning to borrow money from?
Last quarter, we saw small businesses increasingly turning to banks for credit, moving away from credit cards and online lenders, which is an 11% increase from the previous quarter. Small businesses are also becoming more likely to apply for additional credit overall, signaling rising capital needs and a willingness to seek out new financing channels. With this, we’re seeing a growing openness to borrowing from a bank other than their primary business bank.
Middle market companies continue to expect to borrow primarily from their main banking partner, and their likelihood to apply for additional credit has remained relatively flat.However, their expectation to borrow from an alternative bank has grown by 26%.This indicates a shift toward diversifying lending relationships, likely driven by the need for better rates, increased credit flexibility, or a desire to reduce reliance on a single banking institution.
how is live oak bank supporting business owners?
We understand the challenges businesses are facing, and we’re here to help. If you’re looking to:
We are ready to provide personalized financing solutions and expert guidance. We’re committed to helping businesses stay resilient and thrive in 2026 and beyond. Read the full 2026 Q1 BusinessPulse report here.
