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.
For purposes of the BusinessPulse study, small businesses are defined as companies with $100,000 to less than $10 million in annual sales revenue, while middle market companies are those with $10 million to less than $500 million in annual sales revenue.
Financial Conditions
The third quarter revealed a growing divide between small businesses and middle market companies. Small businesses experienced softer sales, weaker profitability and a significant decline in excess cash reserves, leading to a deterioration in overall financial conditions.
Only 13% reported an improvement in their financial condition over the past 12 months, resulting in a net difference (the percentage of businesses reporting improved financial conditions minus the percentage reporting deteriorated financial conditions) of -10%, down nine points from the previous quarter.
At the same time, middle market companies saw meaningful improvement. Stronger sales helped drive better overall performance, with financial condition net difference improving to +19%, up nine points from the second quarter and 15 points from a year ago.
While performance varied by business size, one trend remained consistent: businesses across both segments continue to navigate elevated operating costs and pressure on cash reserves.
Looking Ahead: Confidence Remains Cautious
Confidence in the year ahead softened among small businesses. Four in 10 expect to fall short of their financial goals this year, while expectations for sales, profits and cash reserves all declined compared with last quarter. Small business optimism regarding future financial conditions fell to its lowest level of 2026, with net optimism dropping to +14%.
Middle market companies remain more optimistic - most still expect to meet or exceed their financial goals, and future financial condition optimism remained relatively stable at +31%. Notably, expectations for future sales strengthened considerably compared to the previous quarter.
Cash Reserves Continue to Face Pressure
One of the quarter’s most notable findings was the ongoing pressure on cash reserves.
For small businesses, excess cash reserves fell to their lowest level since the beginning of 2025. The net difference for cash reserves dropped 20 points from the previous quarter and 19 points from the previous year, signaling tighter liquidity for many business owners.
Middle market companies also reported continued pressure on reserves. Although overall financial performance improved, excess cash reserves remained in negative territory, indicating businesses are still drawing down savings to manage expenses and growth initiatives.
Credit Demand is rebounding
After reaching historically low levels earlier in the year, demand for financing increased during the third quarter. Small business applications for additional credit rose to 24%, up significantly from 13% in the second quarter. Businesses seeking financing were primarily looking for working capital and growth opportunities.
Middle market companies also increased borrowing activity, with 37% applying for additional credit during the past 12 months. Access to credit remained favorable, with most applicants receiving full or partial approval. Nearly all businesses planning to borrow indicated they would turn first to their primary banking relationship.
What are Businesses’ Top Concerns in Q3 2026?
For small businesses, rising operating expenses remain the top concern. More than three-quarters (76%) said they are extremely or moderately concerned about the increasing cost of doing business. Concerns about limited cash flow and slowing demand also climbed, with 51% worried about each issue. High fuel prices remain another major challenge, cited by 70% of respondents.
Middle market companies echoed many of these concerns. The cost of doing business topped the list at 75%, followed by high fuel prices (63%) and cybersecurity and fraud (61%). One of the fastest rising concerns this quarter was wage growth not keeping up with inflation, which increased to 57%.
Across both segments, business leaders continue to balance growth opportunities with the realities of higher costs, labor pressures and uncertain demand.
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 2026Q3BusinessPulse report here.
