Confident in Their Business, Cautious About the Economy: The State of Small Business 2026

Introduction

Gusto’s 2026 State of Small Business survey shows that U.S. small business owners feel confident about their own businesses and are more cautious about the economy around them. That gap runs through small business owners’ responses across our survey – from how they price their goods and services, how they hire, how they borrow and their growing use of AI.

Small business owners continue to face economic uncertainty: input costs that continue to affect their own operations, interest rates that can make financing feel unattainable, and resilient but worried consumers. Yet rather than backing down, businesses are leaning into adaptation with two-thirds now actively using AI tools to handle tasks across their operations, up from experimental curiosity just a year ago. The question is no longer whether small businesses can manage an uncertain economy, but whether their strategic adaptations will create a new competitive edge.

Key Findings

• Owners are far more optimistic about their own business than about the U.S. economy: 61% of small-business owners say they're optimistic about their business's current state (unchanged from 2025), but only 18% say the same about the broader U.S. economy (down from 29% in 2025). 59% describe themselves as pessimistic about the economy overall, up from 50% in 2025.

• AI has moved from experiment to habit for most small businesses. 67% of small businesses are now using AI tools for at least some tasks. Adopters are integrating AI more deeply into their business, with 1 in 5 (20%) using AI for multiple business functions regularly or having integrated it across the business.

• Rising costs continue to pressure small business owners. Over half (52%) of small businesses raised prices this past year, and 50% plan to raise them again next year. 59% of owners say input price changes had a negative impact on their business over the past 12 months and 40% said that rising interest rates had a negative impact.

• Hiring remains hard, but the reasons vary sharply by business size. Among owners who struggled to hire, affordability is cited disproportionately by the smallest businesses and scheduling by the largest.

• Small businesses are financing debt and day-to-day operations more than growth. 79% of businesses that used financing in 2026 relied on a business credit card, up from 69% in 2025. One-third of all small businesses used no outside financing at all.

Performance and Optimism: Confident in the Business, Wary of the Economy

Small-business owners are just as confident in their own operations as they were a year ago, but they've grown noticeably more pessimistic about the economy around them, tracking the overall feeling of U.S. consumers. Pessimism about the economy rose compared to 2025 in every industry, by 9 points on average. However, some industries and regions experienced more drastic increases in pessimism. It rose most in Goods-Producing businesses (12 points) and in the West (14 points). It even rose among those owners who feel good about their own business, pessimism was 12 percentage points higher in 2026 than it was in 2025 for this group.

That overall economic sentiment is formed when small business owners look out their front door. Nearly 60% said that their own costs had a negative impact on them this year and 40% say that interest rates have had a negative impact on their business. Additionally, businesses have endured six years of low consumer sentiment and much of the sentiment being at levels similar to those last seen during the Great Recession. This influences what they think about the economy, but it doesn’t seem to be changing how they see their own businesses and their businesses’ prospects.  

Nearly 9-out-of-10 small business owners (86%) report that their business is meeting or exceeding the expectations they had when launching their business. 

Strong individual performance could be why optimism about the business itself has barely moved. Sixty-one percent of respondents in the 2025 survey said that they were optimistic about their business. That figure is virtually unchanged in 2026: 61% of owners are optimistic about their business today, split between 19% who are extremely optimistic and 42% who are somewhat optimistic, with 16% pessimistic and 23% neutral.

This points to a widening gap between how small-business owners feel about their own company's trajectory and how they feel about the environment it operates in: owners' trust in their own ability to handle challenges still holds.

Costs and Pricing: Pressure Persists, But Business Optimism Held

Rising input costs remained one of the defining challenges of the past 12 months. Fifty-nine percent of owners say changing input prices had a somewhat or much more negative impact on their business between August 2025 and August 2026 than the prior year, compared with just 3% who say the impact was positive. This is unchanged from last year, when 59% of owners also said that changing input prices had a negative impact on their business compared to the prior year. These readings are up from the low we recorded in 2024, when 48% of small business owners said that input prices had a negative impact on their business.

Goods-Producing businesses – construction, manufacturing, and related industries – felt the most pressure, with 26% reporting a much more negative impact from input costs in the past year, well above the 20% average across all businesses. These businesses are most exposed to increased raw material costs and transportation costs for large materials could be most biting.

More than half of owners responded by raising their own prices. Over the past 12 months, 52% of small businesses raised prices – most commonly by up to 10% (34%) – while 42% held prices steady and just 3% cut prices. Expectations for the year ahead look similar: 50% plan to raise prices (again, mostly by up to 10%), and 42% plan to hold steady.

Customer demand and access to credit support business optimism

Sixty-one percent of small-business owners say they are optimistic about their own business, unchanged from 2025. We asked them what was driving that view, and they said that their customers kept walking through the door. Sixty-eight percent of optimistic owners name customer spending and demand, well ahead of industry-specific trends (41%) and their competitive position (33%).

Optimism was also associated with less concern about cost pressure this year. Eighteen percent of optimistic owners cited inflation or price volatility as a factor influencing their view of their business, compared to 53% of pessimistic owners. However, not all businesses felt this pressure evenly. About 11% of businesses that were optimistic said that tariffs influenced their view, though the survey did not ask whether that influence was positive or negative.

Many more businesses were optimistic (61%) than pessimistic (16%) about their business, yet about 70% of each cited customer spending and demand as a driver of their output. This survey shows that business optimism is dependent on customer demand, and continued consumer and economic spending likely buoyed optimism this year despite some businesses experiencing lower demand.

Importantly, nearly ⅔ of pessimistic businesses cited their own costs as a reason that they’re pessimistic on their business. More than half said inflation and price volatility influenced and more than one-third said tariffs influenced their pessimism. While optimistic businesses were not protected from these pressures, their customers kept placing orders and spending. This creates opportunity for the nearly ⅔ of businesses who are positive about their own outlook: maintain focus on the customer and support meeting their demand.

Optimistic owners were more likely to secure the financing they needed

Classic economics say that businesses seek credit to expand operations and grow, yet many end up using credit to smooth cash flows rather than to grow. In 2026 optimistic small businesses were more likely to secure needed financing, and had access to their credit product of choice. Nearly 9-in-10 optimistic businesses were able to secure all financing when they sought it, compared to nearly ¾ of pessimistic businesses. Access to credit when needed, in the form that it was needed, was associated with business optimism. Supporting financing needs of businesses may help them see over immediate difficulties along the road so that they can continue focusing on meeting consumer demand. 

Artificial Intelligence: From Curiosity to Daily Habit

The clearest shift in this year's survey is how quickly small businesses have adopted AI tools. Just 6% of owners say they're not aware of any business use cases for AI, and only 27% are aware of AI but don't use it. That means two-thirds of small businesses (67%) have moved into active use – 19% are experimenting, 28% use AI for at least some tasks, 15% use it regularly across multiple functions, and 5% say AI is integrated into every part of the business where the technology currently allows.

Adoption is highest among Professional Services businesses, where 27% report using AI for multiple functions or across the whole business, versus just 16% of Personal Services businesses and 13% of Community Services. Adoption doesn't track cleanly with size. Solo owners and businesses with 10-24 employees report similar rates of heavy AI use, which suggests that industry and the nature of the work matter more than headcount alone.

Perhaps the largest indicator of how rapidly small business use around AI has changed is in the share with policies about its use at work. Policy indicates that small business owners have developed a view on how their business can benefit from the technology and the guardrails that need to be developed. About 1 in 4 businesses with employees (25%) have any kind of AI policy (up sharply from 15% last year) and 47% say they have no AI policy and no plans to create one. (The remaining 28% are considering developing AI policies.) While not every small business will develop an AI policy, and many may not need one, adopting a policy around tool use is a clear indicator that the technology and its use is becoming formalized.

Where Owners Draw the Line on AI

Asked what tasks they'd be comfortable letting an AI tool handle with limited human review, small-business owners drew a clear line between communication and judgment-heavy work. Owners are most comfortable with AI drafting marketing content and writing routine customer emails, and far less comfortable letting AI do data analysis or answer customer questions directly.

Small businesses that currently use AI are dramatically more comfortable delegating tasks to AI with limited human review compared to non-adopters. About 60% of AI adopters are comfortable with AI drafting marketing content with limited oversight, compared to just 27% of non-adopters. There are similar patterns for writing emails (49% vs 20%), bookkeeping (30% vs 6%), and scheduling (31% vs 8%). Even non-adopters show meaningful openness to AI automation, particularly for marketing content, with only 5% of all businesses rejecting AI assistance with limited review entirely. 

Hiring: Still Hard, For Different Reasons at Different Sizes

Throughout most of 2026 Gusto observed small businesses adding to their payrolls, with growth slowing about halfway through the year but never stopping. This shows up when we look at the hiring challenges small businesses faced this year. Nearly a quarter of one-employee businesses reported that they tried to hire, while nearly every business with 10-24 employees reported doing so. Most employer businesses, those with two or more employees, tried hiring this year and faced different markets.

Among the 26% of small-business owners who tried to hire in the past 12 months but struggled to find employees who were able and qualified to work for wages they could afford, the most common complaint is a skills gap: 64% say candidates lacked the skills required for the role. But the story changes noticeably by business size.

Skills gaps were the top reason at every size, but businesses with one employee (41%) and with 5-9 employees (43%) were more likely than average (35%) to say they couldn't afford the labor costs qualified candidates required (41% vs 35% for all businesses). The biggest constraint for those larger small businesses is scheduling: 53% say candidates couldn't or wouldn't work the hours the business needed, compared with just 21% of solo owners.

Financing: Bridging Gaps More Than Funding Growth

About one-third of small businesses (35%) used no outside financing source at all in 2026. Among the two-thirds who did tap some kind of financing, the most common source by far was a business credit card (79%), followed by personal contributions like savings or a personal credit card (46%) and private, non-SBA-backed business loans (25%).

Credit cards represent significant cash flow and financing tools for small businesses. Nearly eight-in-ten small businesses that used financing in 2026 relied on a business credit card, and among those, 63% reported not paying off their balance each month suggesting that they are using credit cards as financing beyond 30 days.

Reliance on credit cards as financing is highest among solo owners (84%) and lowest among businesses with 10-24 employees (72%), while larger small businesses are far more likely to have used a private business loan (38% of 10-24 employee businesses vs. 8% of solo owners) – a sign that as businesses grow, they gain access to, and increasingly rely on, more traditional forms of credit rather than revolving consumer debt.

The good news is that businesses reported securing the financing that they needed this year. Among businesses that sought financing in 2026, 85% say they were able to secure all the financing they needed, though that success rate drops to 78% among Personal Services businesses and 79% among businesses with 10-24 employees. 

The finances use cases of businesses that didn't secure all their financing needs suggest that they are facing tight cash flows. One example of this is that 52% of businesses that didn’t secure financing report needing it for funding payroll expenses, almost 3x the rate of businesses that secured full financing. These credit-constrained businesses are also significantly more likely to seek funding for long-term growth (11% vs. 3% among those who secured full financing). This lack of access may mean that these businesses do not have funding necessary to grow or expand their businesses. Meanwhile, businesses that successfully secured financing were far more likely to use it for debt refinance (52%).

Looking Ahead

The 2026 data paint a picture of small businesses that trust their own execution more than they trust the environment around them – and that are moving quickly to find strategic adaptations to strengthen their business. Small businesses continue to face costs that are affecting their businesses negatively, and the financing small businesses rely on remains skewed toward revolving credit rather than the longer-horizon lending that funds expansion. However, small business owners remain optimistic about their business. Many may view starting a business as a proof point in their own capabilities and resilience, and draw on that as they navigate uncertainty.

Methodology

Data presented in this report come from the 2026 State of Small Business Survey, conducted by Gusto's Insights Group between August 17 and September 7, 2026, among 1,731 small-business owners of businesses with 24 or fewer employees. Survey participants were recruited from the universe of Gusto customers who have owned or operated their business for at least 12 months and confirmed they are the owner or a primary shareholder of the business. The margin of error for this survey is +/- 3.4 percentage points. Margins of error are larger for subgroups (e.g., by business size, sector, region, or optimism), and differences between subgroups noted in this report may not all be statistically significant. 

Results were weighted to be nationally representative using the national distribution of two-digit NAICS sectors and firm age from the U.S. Census Bureau’s Annual Business Survey, 2023 (most recent data available). To ensure adequate sample sizes for analysis, detailed two-digit NAICS industries were grouped into four broader Gusto sectors: Professional Services; Goods-Producing (construction, manufacturing, utilities, wholesale trade, transportation, and resource extraction); Community Services (health care, education, and public administration); and Personal Services. Weighting does not adjust for other ways Gusto customers may differ from all U.S. small businesses, so results may not represent every small business.