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.

FINANCIAL CONDITIONS

Small businesses continued to face financial pressure in the fourth quarter of 2026. Nearly half reported declining profits over the past 12 months, and cash reserves remained constrained. While the overall financial condition of small businesses improved slightly from the previous quarter, expectations for the year ahead weakened significantly.

The data also reveals a widening divide based on business size. Small businesses (businesses generating between $100,000 and $500,000 in annual revenue) reported weaker financial conditions than their larger counterparts, while the largest small businesses (those with annual revenue between $2.5 million and $10 million) remained notably more resilient.

Middle market companies continued to outperform small businesses overall. Thirty-two percent reported improved financial conditions compared to 16% reporting deterioration, resulting in a positive net difference of 15%. Even so, many experienced softer sales and profit growth than earlier in the year, signaling a more cautious operating environment heading into the new year.

Businesses Are Raising Prices to Protect Margins

Persistent operating cost pressures continue to shape business decisions across the country. Among small businesses, 47% increased prices during the past 12 months, while 49% reported declining profits, highlighting the challenge of preserving margins.

Middle market companies have been even more aggressive with pricing strategies. Sixty-two percent increased prices during the past year, and the net share of companies raising prices reached its highest level since the inflationary period at the end of 2022.

Looking ahead, price increases are expected to continue. More than half of middle market companies anticipate raising prices over the next 12 months, while 45% of small businesses expect to do the same as they work to offset elevated expenses and maintain profitability.

Confidence for the Year Ahead Is Diverging

Despite ongoing challenges, many businesses still expect to achieve their financial goals. More than half (54%) of small businesses expect to meet or exceed their 2026 goals, though that is down from 63% in the first quarter and 58% in the second. One-third also expect profits to decline during the next 12 months.

Small business expectations for future financial conditions fell to their lowest point in nearly six years, reflecting continued concern around costs, demand and economic uncertainty.

Middle market companies tell a different story. Nearly half expect their financial condition to improve over the next year, while only 13% anticipate deterioration. This suggests larger organizations continue to feel better positioned to weather potential economic headwinds.

Cash Reserves Remain Under Pressure

Many businesses continue to operate with limited financial cushions. Among small businesses, excess cash reserves remained in negative territory, reflecting the combined impact of higher operating expenses and slower growth trends.

While middle market companies reported stronger overall financial performance, cash reserve expectations also softened compared to earlier periods. At the same time, hiring and capital spending activity moderated as small businesses contended with weaker sales and profits.

These trends suggest businesses remain focused on liquidity management as they prepare for an uncertain economic environment in the year ahead.

Credit Demand Is Becoming More Cautious

Applications for additional credit among small businesses fell to 15% after reaching a peak in the third quarter. At the same time, businesses increasingly relied on credit cards and personal savings to help finance operations, while use of commercial bank financing declined from the previous quarter.

Among businesses considering future borrowing, working capital emerged as the most common reason for seeking financing, followed by business growth initiatives and equipment purchases.

Middle market companies also showed signs of caution. Twenty-seven percent applied for additional credit during the past year, down 10 percentage points from the prior quarter. Looking ahead, only 14% expect to apply for financing, while 21% remain unsure, highlighting increased uncertainty around borrowing decisions.

What Are Businesses' Top Concerns in Q4 2026?

Rising costs remain the dominant concern for both small business and middle market leaders. Among small businesses, 73% expressed concern about high fuel prices, while 71% cited the increasing cost of doing business. Cybersecurity and fraud concerns also remained elevated, with 63% reporting concern about potential impacts to their organizations.

Middle market companies reported similar worries. Eighty-three percent cited the increasing cost of doing business as a concern, while 81% pointed to high fuel prices. Cybersecurity and fraud ranked among the top business concerns as well, with 68% reporting concern.

Government policy, labor costs, interest rates and tariffs also remain on business owners' minds as they prepare for the year ahead. While economic uncertainty continues to influence decision-making, many organizations remain focused on protecting margins, managing liquidity and positioning themselves for long-term growth.

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:

• Strengthen working capital and improve cash flow flexibility amid rising operating costs.
• Finance equipment purchases that support productivity and long-term growth.
• Access capital to support expansion opportunities and strategic investments.
• Build greater financial resilience and maintain liquidity during uncertain economic conditions.
• Explore financing options tailored to your business's size, industry and growth goals.

We are ready to provide personalized financing solutions and expert guidance. We're committed to helping businesses stay resilient and thrive in 2027 and beyond.