First quarter 2020 summary ECONOMIC POSITION Past 12 months SMALL - - PowerPoint PPT Presentation

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First quarter 2020 summary ECONOMIC POSITION Past 12 months SMALL - - PowerPoint PPT Presentation

Dec 29, 2022 372 likes •751 views

First quarter 2020 summary ECONOMIC POSITION Past 12 months SMALL BUSINESS MIDDLE MARKET Optimism flat Increased optimism Decreased profits Increased prices & sales Decreased hiring & capital expenditures Increased capital

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Live Oak BusinessPulse

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Decreased need but increased expected need for bank loans Flat demand for additional credit Increased expectations to apply for additional credit Decreased need & expected need for bank loans Decreased demand for additional credit Increased expectations to apply for additional credit

First quarter 2020 summary

SMALL BUSINESS

ECONOMIC POSITION

Past 12 months

CREDIT OUTLOOK ECONOMIC OUTLOOK

Next 12 months Increased optimism Increased prices & sales Increased capital expenditures

MIDDLE MARKET

Optimism flat Decreased profits Decreased hiring & capital expenditures Increased confidence Increased prices, sales & profit expectations Increased cash reserve expectations; Decreased hiring & capital expenditure expectations Increased confidence Increased prices, sales & profit expectations Flat hiring, cash reserve & capital expenditure expectations

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Middle market ($10MM-<$500MM) Small business ($100K-<$10MM)

Q: During the next 12 months, do you expect your company’s overall financial condition to…

BusinessPulse Quarterly Trending Data (1st quarter)

Low oil & gas prices Unemployment peaks Health care bill passes Dodd- Frank & CPA act enabled Housing market hits bottom Stock market hits record high Government shutdown Private sector jobs return to pre- recession levels Stimulus package passes Polarizing election Brexit Trump elected Income tax rate cuts 35-day gov’t shutdown

FINANCIAL CONDITION

Next 12 months net difference

Business confidence fluctuation with major events

Tariffs announced Trade tensions

S&P 500 reaches new high

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0% Net difference

2012 2013 2014 2015 2016 2017 2018 2019 2020 Middle market ($10MM-<$500MM) Small business ($100K-<$10MM)

U.S. economy confidence fluctuation with major events

Q: During the next 12 months, do you expect the U.S. economy to…

BusinessPulse Quarterly Trending Data (1st quarter)

Low oil & gas prices Housing market hits bottom Stock market hits record high Government shutdown Private sector jobs return to pre- recession levels Polarizing election Brexit Trump elected Income tax rate cuts

U.S. ECONOMY CONDITION

Next 12 months net difference

Tariffs announced 35-day gov’t shutdown Trade tensions

S&P 500 reaches new high

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12% 30% 58%

2020 2021 After 2021

Most are not expecting a recession within the next two years

Q: When do you anticipate the U.S. will begin another economic recession?

BusinessPulse First Quarter 2020 Data

EXPECTED YEAR NEXT RECESSION WILL BEGIN

8% 30% 61%

SMALL BUSINESS

($100K-<$10MM)

MIDDLE MARKET

($10MM-<$500MM)

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Retrospective economic position

1

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  • 19%
  • 30%

7%

  • 17%

25% 29% 32% 26% 14% 38% 35% 16% 39% 27% 44% 25% 47% 37%

  • 60%
  • 40%
  • 20%

0% 20% 40% 60% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Small business ($100K-<$10MM) Middle market ($10MM-<$500MM)

Small business past-looking perceptions of overall financial was higher than middle market for the first time

Q: During the last 12 months, did your company’s overall financial condition…

BusinessPulse Quarterly Trending Data (1st quarter)

Net difference

(improve – deteriorate)

FINANCIAL CONDITION

Past 12 months

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Live Oak BusinessPulse

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Q: During the last 12 months, did your company’s…

$100K-<$10MM BusinessPulse Quarterly Trending Data (1st quarter)

Small business net difference change from the first quarter of 2019 (past 12 months)

Micro business

($100K-<$500K)

Small enterprise

($500K-<$2.5MM)

Business banking

($2.5MM-<$10MM)

12% Overall financial condition

12% 14% 5%

2% Prices

0% 14% 5%

4% Sales

5% 2%

  • 1%
  • 11%

Profits

  • 14%

4%

  • 6%

5% Full-time employees

6% 5%

  • 2%
  • 1%

Capital expenditures

  • 2%

6% 3%

  • 4%

Excess cash reserves

  • 9%

10% 9%

Total small business market

= change <5% = change 5%-10% = change 11%-15% = change 16%+

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  • 100%
  • 75%
  • 50%
  • 25%

0% 25% 50% 75% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Prices Sales Profits after taxes

Sales and price increases have likely impacted perceptions of overall financial condition

Increased 44% Decreased 18% Increased 30% Decreased 21% Increased 33% Decreased 2% Net difference

(increased – decreased)

+31%

Profits Prices Sales

Net difference

(increased – decreased)

Net difference

(increased – decreased)

+9%

SMALL BUSINESS PRICES, SALES & PROFITS

Past 12 months

Q: During the last 12 months, did your company’s…

$100K-<$10MM BusinessPulse Quarterly Trending Data (1st quarter)

Net difference

(increased – decreased)

+26%

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Increased 9% Decreased 6%

  • 100%
  • 75%
  • 50%
  • 25%

0% 25% 50% 75% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Full-time employees Capital expenditures Excess cash reserves

While still relatively low, capital expenditures have increased in the first quarter

  • f 2020

Increased 23% Decreased 15% Increased 19% Decreased 20% Net difference

(increased – decreased)

+3%

Excess cash reserves Full-time employees Capital expenditures Net difference

(increased – decreased)

+8%

Net difference

(increased – decreased)

<1%

SMALL BUSINESS HIRING, CAPITAL EXPENDITURES & CASH RESERVES

Past 12 months

Q: During the last 12 months, did your company’s…

$100K-<$10MM BusinessPulse Quarterly Trending Data (1st quarter)

Net difference

(increased – decreased)

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Live Oak BusinessPulse

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= change <5% = change 5%-10% = change 11%-15% = change 16%+

Middle market net difference change from the first quarter of 2019 (past 12 months)

Commercial banking

($10MM-<$50MM)

Corporate banking

($50MM-<$500MM)

2% Overall financial condition

  • 1%

11%

4% Prices

4% 4%

2% Sales

2% 3%

  • 3%

Profits

  • 5%

6%

3% Full-time employees

2%

  • 5%
  • 12%

Capital expenditures

  • 13%
  • 9%

7% Excess cash reserves

4% 17%

Q: During the last 12 months, did your company’s…

$10MM-<$500MM BusinessPulse Quarterly Trending Data (1st quarter)

Total middle market

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Increased 42% Decreased 6%

  • 100%
  • 75%
  • 50%
  • 25%

0% 25% 50% 75% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sales Prices Profits after taxes

Middle market profits decreased after an uptick at the end of 2019

Increased 56% Decreased 19% Increased 42% Decreased 28% Net difference

(increased – decreased)

+36%

Profits Prices Sales

Net difference

(increased – decreased)

+37%

Net difference

(increased – decreased)

+14%

MIDDLE MARKET PRICES, SALES & PROFITS

Past 12 months

Q: During the last 12 months, did your company’s…

$10MM-<$500MM BusinessPulse Quarterly Trending Data (1st quarter)

Net difference

(increased – decreased)

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Live Oak BusinessPulse

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Increased 36% Decreased 12%

  • 100%
  • 75%
  • 50%
  • 25%

0% 25% 50% 75% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Full-time employees Capital expenditures Excess cash reserves

Middle market net difference hiring ticked down after a high point in the fourth quarter of 2019

Increased 32% Decreased 16% Increased 34% Decreased 19% Net difference

(increased – decreased)

+24%

Excess cash reserves Full-time employees Capital expenditures Net difference

(increased – decreased)

+16%

Net difference

(increased – decreased)

+15%

Net difference

(increased – decreased) Q: During the last 12 months, did your company’s…

$10MM-<$500MM BusinessPulse Quarterly Trending Data (1st quarter)

MIDDLE MARKET HIRING, CAPITAL EXPENDITURES & CASH RESERVES

Past 12 months

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Future economic outlook

2

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5% 43% 61% 40% 63% 43% 59% 56% 11% 31% 19% 26% 53% 38% 50% 27% 40%

  • 70%
  • 50%
  • 30%
  • 10%

10% 30% 50% 70% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Middle market ($10MM-<$500MM) Small business ($100K-<$10MM)

Small business and middle market financial condition confidence improved

FINANCIAL CONDITION

Next 12 months

Q: During the next 12 months, do you expect your company’s overall financial condition to…

BusinessPulse Quarterly Trending Data (1st quarter)

Net difference

(improve – deteriorate)

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Live Oak BusinessPulse

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Small business net difference change from the first quarter of 2019 (next 12 months)

Micro business

($100K-<$500K)

Small enterprise

($500K-<$2.5MM)

Business banking

($2.5MM-<$10MM)

  • 10%

Overall financial condition

  • 13%
  • 3%

12%

3% Prices

4% 0% 0%

  • 16%

Sales

  • 20%
  • 1%

11%

  • 10%

Profits

  • 13%
  • 3%

19%

  • 6%

Full-time employees

  • 10%

3% 10%

  • 7%

Capital expenditures

  • 10%

4%

  • 2%
  • 8%

Excess cash reserves

  • 13%

8% 15%

Total small business market

Q: During the next 12 months, do you expect your company’s…

$100K-<$10MM BusinessPulse Quarterly Trending Data (1st quarter)

= change <5% = change 5%-10% = change 11%-15% = change 16%+

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  • 100%
  • 75%
  • 50%
  • 25%

0% 25% 50% 75% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Prices Sales Profits after taxes

Small businesses grew more optimistic about their future prices, sales and profits

To increase 37% To decrease 3% Net difference

(to increase – to decrease)

+34%

Profits Prices Sales

Net difference

(to increase – to decrease)

+33%

Net difference

(to increase – to decrease)

+29%

SMALL BUSINESS PRICES, SALES & PROFITS

Next 12 months

Q: During the next 12 months, do you expect your company’s…

$100K-<$10MM BusinessPulse Quarterly Trending Data (1st quarter)

To increase 44% To decrease 11% To increase 40% To decrease 11% Net difference

(to increase – to decrease)

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To increase 15% To decrease 17%

  • 100%
  • 75%
  • 50%
  • 25%

0% 25% 50% 75% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Excess cash reserves Full-time employees Capital expenditures

After declining in 2019, an increased percentage of small businesses are expecting to have excess cash reserves

To increase 13% To decrease 6%

+7%

Excess cash reserves Full-time employees Capital expenditures

  • 2%

+18%

Q: During the next 12 months, do you expect your company’s…

$100K-<$10MM BusinessPulse Quarterly Trending Data (1st quarter)

Net difference

(to increase – to decrease)

Net difference

(to increase – to decrease)

Net difference

(to increase – to decrease)

SMALL BUSINESS HIRING, CAPITAL EXPENDITURES & CASH RESERVES

Next 12 months Net difference

(to increase – to decrease)

To increase 30% To decrease 13%

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Live Oak BusinessPulse

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Middle market net difference change from the first quarter of 2019 (next 12 months)

Commercial banking

($10MM-<$50MM)

Corporate banking

($50MM-<$500MM)

Total middle market

Q: During the next 12 months, do you expect your company’s…

$10MM-<$500MM BusinessPulse Quarterly Trending Data (1st quarter)

13% Overall financial condition

14% 6%

2% Prices

3% 1%

7% Sales

7% 5%

7% Profits

10%

  • 5%
  • 10%

Full-time employees

  • 11%
  • 6%

7% Capital expenditures

10%

  • 4%

0% Excess cash reserves

  • 3%

10% = change <5% = change 5%-10% = change 11%-15% = change 16%+

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Live Oak BusinessPulse

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  • 100%
  • 75%
  • 50%
  • 25%

0% 25% 50% 75% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sales Prices Profits after taxes

Middle market price, sales and profit expectations continued to rebound after declines in the third quarter of 2019

To increase 45% To decrease 4% Net difference

(to increase – to decrease)

+41%

Profits Prices Sales

Net difference

(to increase – to decrease)

+52%

Net difference

(to increase – to decrease)

+39%

Q: During the next 12 months, do you expect your company’s…

$10MM-<$500MM BusinessPulse Quarterly Trending Data (1st quarter)

To increase 63% To decrease 11% To increase 52% To decrease 13%

MIDDLE MARKET PRICES, SALES & PROFITS

Next 12 months Net difference

(to increase – to decrease)

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Live Oak BusinessPulse

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To increase 35% To decrease 15% To increase 29% To decrease 13%

  • 100%
  • 75%
  • 50%
  • 25%

0% 25% 50% 75% 100% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Full-time employees Excess cash reserves Capital expenditures

Middle market hiring, excess cash reserve and capital expenditure expectations remained relatively flat

To increase 35% To decrease 12%

+23%

Excess cash reserves Full-time employees Capital expenditures

+16% +20%

Q: During the next 12 months, do you expect your company’s…

$10MM-<$500MM BusinessPulse Quarterly Trending Data (1st quarter)

Net difference

(to increase – to decrease)

Net difference

(to increase – to decrease)

Net difference

(to increase – to decrease)

MIDDLE MARKET HIRING, CAPITAL EXPENDITURES & CASH RESERVES

Next 12 months Net difference

(to increase – to decrease)

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Credit outlook

3

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6%

  • 11%

12%

  • 20%
  • 50%
  • 30%
  • 10%

10% 30% 50%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Middle market ($10MM-<$500MM) Small business ($100K-<$10MM)

<1%

  • 5%

6%

  • 13%
  • 50%
  • 30%
  • 10%

10% 30% 50%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Middle market ($10MM-<$500MM) Small business ($100K-<$10MM)

The need for bank loans over the last 12 months declined in both small business and middle market

NEED FOR BANK LOANS

BusinessPulse Quarterly Trending Data (1st quarter)

PAST 12 MONTHS NEXT 12 MONTHS

Net difference

(increased – decreased)

Net difference

(to increase – to decrease)

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Credit denials remained consistently low

22% 26% 7% 13% 13% 9% 4% 10% 15% 4% 7% 1% 3% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Small business ($100K-<$10MM) Middle market ($10MM-<$500MM) % Denied or expect to be denied

ADDITIONAL CREDIT DENIALS

Q: During the last 12 months, has your company applied for additional credit or loans from a financial institution?

BusinessPulse Quarterly Trending Data (1st quarter)

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50% 56% 26% 27% 36% 20% 17% 16% 3% 2012 2013 2014 2015 2016 2017 2018 2019 2020 % Use No additional financing Credit cards Personal savings Commercial bank Online non-bank lender

SMALL BUSINESS SOURCES OF FINANCING

Q: During the last 12 months, in addition to your company’s equity and cash flow, how has your company financed its business operations?

$100K-<$10MM BusinessPulse Quarterly Trending Data (1st quarter)

Small businesses grew increasingly reliant on credit cards to finance business

  • perations
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24% 37% 43% 30% 13% 22% 13% 25% 18% 27% 14% 20% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Demand for additional credit among small businesses has been consistently flat for three quarters

1Q2019

SMALL BUSINESS APPLICATIONS FOR ADDITIONAL CREDIT

Past 12 months ADDITIONAL CREDIT APPLICATION TREND

Q: During the last 12 months, has your company applied for additional credit or loans from a financial institution?

$100K-<$10MM BusinessPulse Quarterly Trending Data (1st quarter)

% Applied for additional credit Micro business

($100K-<$500K)

Business banking

($2.5MM-<$10MM)

Small enterprise

($500K-<$2.5MM)

19% 27% 25%

1Q2020 CHANGE FROM 1Q2019

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Nine in ten small businesses that applied for additional credit received full approval

Did not apply for credit 80% Applied for credit 20% 2% 5% 5% 20% 26% 36% SBA loans Equipment leasing Commercial real estate Term loans (>1 year) Secured short-term loans Unsecured short-term loans

89%

Full approval

9%

Partial approval

2%

Denied

4%

Expect not to be approved

61%

No current need for credit

34%

Company does not borrow

TYPE OF ADDITIONAL CREDIT ATTEMPTING TO ACQUIRE* SMALL BUSINESS CREDIT APPLICATION OUTCOME

$100K-<$10MM *Base: those that applied for additional credit BusinessPulse 1Q2020 Data

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The use of all sources of financing decreased among middle market companies

MIDDLE MARKET SOURCES OF FINANCING

Q: During the last 12 months, in addition to your company’s equity and cash flow, how has your company financed its business operations?

$10MM-<$500MM BusinessPulse Quarterly Trending Data (1st quarter)

51% 56% 40% 37% 5% 9% 12% 7% 1% 2012 2013 2014 2015 2016 2017 2018 2019 2020 % Use No additional financing Commercial bank Credit cards Personal savings Online non-bank lender

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36% 36%

Middle market demand for additional credit continued to decrease; this trend is more pronounced among the corporate banking segment

35% 39% 43% 32% 41% 29% 40% 30% 41% 40% 32% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Commercial banking

($10MM-<$50MM)

Corporate banking

($50MM-<$500MM)

MIDDLE MARKET APPLICATIONS FOR ADDITIONAL CREDIT

Past 12 months ADDITIONAL CREDIT APPLICATION TREND

Q: During the last 12 months, has your company applied for additional credit or loans from a financial institution?

$10MM-<$500MM BusinessPulse Quarterly Trending Data (1st quarter)

% Applied for additional credit 33% 28% 1Q2019 1Q2020 CHANGE FROM 1Q2019

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Live Oak BusinessPulse

Nearly all middle market companies that applied for additional credit received at least partial approval

Did not apply for credit 68% Applied for credit 32% <1% 9% 23% 29% 35% 41% SBA loans Unsecured short-term loans Commercial real estate Equipment leasing Term loans (>1 year) Secured short-term loans

91%

Full approval

9%

Partial approval

1%

Denied

3%

Expect not to be approved

70%

No current need for credit

26%

Company does not borrow

TYPE OF ADDITIONAL CREDIT ATTEMPTING TO ACQUIRE* MIDDLE MARKET CREDIT APPLICATION OUTCOME

$10MM-<$500MM *Base: those that applied for additional credit BusinessPulse 1Q2020 Data

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26% 21% 19% 29% 26% 37% 27% 32% 21% 28% 25% 26% 27% 27% 24% 36% 40% 30% 28% 27% 26% 28% 33% 25% 29% 24% 24% 22% 26% Expect to apply or are not sure 10% 8% 9% 7% 9% 14% 7% 11% 4% 12% 12% 8% 7% 8% 11% 13% 15% 10% 11% 12% 11% 12% 13% 9% 15% 11% 9% 9% 12% 2013 2014 2015 2016 2017 2018 2019 2020 Expect to apply

Small business expectations to apply for additional credit remained low but increased slightly

Q: During the next 12 months, do you expect your company to apply for additional credit or loans from any financial institution?

$100K-<$10MM BusinessPulse Quarterly Trending Data (1st quarter)

SMALL BUSINESS EXPECTED APPLICATIONS

Next 12 months

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Live Oak BusinessPulse

36% 35% 31% 33% 34% 32% 38% 35% 40% 42% 34% 31% 34% 37% 37% 31% 35% 36% 38% 31% 32% 34% 33% 40% 29% 28% 35% 31% 32% Expect to apply or are not sure 18% 20% 17% 22% 22% 21% 20% 18% 23% 23% 25% 20% 20% 25% 24% 16% 18% 21% 28% 19% 22% 23% 24% 28% 20% 17% 24% 18% 24% 2013 2014 2015 2016 2017 2018 2019 2020 Expect to apply

Middle market expectations to apply for additional credit rebounded after low levels in the fourth quarter of 2019

Q: During the next 12 months, do you expect your company to apply for additional credit or loans from any financial institution?

$10MM-<$500MM BusinessPulse Quarterly Trending Data (1st quarter)

MIDDLE MARKET EXPECTED APPLICATIONS

Next 12 months

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Live Oak BusinessPulse

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A third of small businesses will likely postpone making capital expenditures until after the presidential election

4% 2% 33% 21% 46% 62% 17% 15% Will impact decision to make capital expenditures Will impact decision to hire new employees Yes, likely to occur BEFORE election Yes, likely to occur AFTER election No impact Do not know

Q: Will the 2020 presidential election impact your decision to…

$100K-<$10MM BusinessPulse First Quarter 2020 Data

SMALL BUSINESS IMPACT OF PRESIDENTIAL ELECTION ON HIRING & CAPITAL EXPENDITURES

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Middle market companies’ decisions to hire and make capital expenditures is will likely not be impacted by the presidential election

10% 7% 19% 16% 60% 68% 11% 9% Will impact decision to make capital expenditures Will impact decision to hire new employees Yes, likely to occur BEFORE election Yes, likely to occur AFTER election No impact Do not know

Q: Will the 2020 presidential election impact your decision to…

$10MM-<$500MM BusinessPulse First Quarter 2020 Data

MIDDLE MARKET IMPACT OF PRESIDENTIAL ELECTION ON HIRING & CAPITAL EXPENDITURES

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Live Oak BusinessPulse

Methodology

This Live Oak BusinessPulse report contains data from surveys conducted in the first quarter of 2020 by Barlow Research, involving a sample of 366 small businesses and 321 middle market

  • companies. Companies surveyed include

all SIC categories except depository institutions, U.S. postal services, private households, bank holding companies and commercial non-physical research. (All Pulse Survey respondents previously participated in Barlow Research’s small business or middle market banking surveys.)

Fielding January 10 – January 27, 2020 Weighted By geography and sales volume Small business

($100K-<$10MM)

Middle market

($10MM-<$500MM)

Respondents 366 321

  • Resp. Rate

35% 31% Max Error Factor

(at 95% confidence interval)

±5.12% ±5.471%

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