While the mood on Main Street has brightened, concerns about the economy, stubborn inflation and the banking system are weighing on small business owners, according to the latest quarterly survey from CNBC and Momentive.

Small business confidence for the second quarter rose slightly to 46 from 45 in the first quarter, though that still remains below the baseline for optimism. Forty percent of owners describe their current business conditions as good, up from 34% in the first quarter and nearly half (46%) say they project revenue to increase in the next year.

But just 21% say they’d describe the economy as good or excellent — less than half of those that described the economy as “poor” (44%), as challenges continue with inflation and the ongoing labor crunch.

The CNBC|SurveyMonkey Small Business Survey was conducted from April 17 through April 24 among more than 2,200 small business owners across the country using Momentive’s platform.

Inflation remains the No. 1 concern

The top issue for owners is inflation, with 91% expressing worry about price pressures and 41% saying it is their No. 1 concern. Less than a third of owners polled say they have confidence in the Federal Reserve — which raised rates again on Wednesday but signaled a pause may be ahead — to control inflation, unchanged from last quarter. The labor shortage and supply chain disruptions round out the top three concerns for Main Street in the survey.

Inflation is proving stubborn based on the latest economic data and has been an ongoing concern for Bill Belknap, president of AEONRG, a construction company based in Downingtown, Pennsylvania. Belknap works in government contracting and said higher inflation rates impact his bidding prices. He’s happy to see the progress made in inflation coming down over the last year but would like to see the trajectory continue.

“I would hope that we would get back down to the 2% to 3% interest rates as a goal for all of us, which would greatly help our predictability of being able to propose [bids]” he said. “What I see is a snowball effect with increased inflation unpredictability, with other people raising their prices … having that moderation and predictability is very significant to us achieving success.”

Banking crisis, higher rates weigh

With the collapse of regional banks Silicon Valley Bank, Signature Bank and First Republic, the safety of banks and the ability to access capital is also on the minds of small business owners.

More than 60% say they are banking with community or regional banks, and the survey shows owners are split evenly between those who express confidence in America’s banking system and those who do not. The majority of owners polled say they are confident their business capital is secure, but almost half say it isn’t easy for them to access capital to operate.

For some, the lending environment is beginning to shift, but the movement started prior to the latest banking collapses. Mitchel Sellers, who runs Iowa Computer Gurus in Des Moines, Iowa, and has been in business for 17 years, says while he hasn’t been turned down for a loan recently, he is being asked for more information during the application process.

“It is a tightening where banks are asking more questions, and it’s becoming harder to get loans,” Sellers said. “I believe business development is being stifled because of interest rate raises. We aren’t expanding in ways that I would want to because I have to pay 6.5% interest on a loan that a year ago I would have paid 3% on. So that is limiting my development and our ability to expand.”

Even before the Fed took its benchmark rate to a target range of 5% to 5.25% on Wednesday, many business loans were firmly above the double-digit percentage mark when factoring in the SBA loan market prime rate of 8% in April.

The higher interest rate environment is showing up in the latest polling from the National Federation of Independent Business, which tracked a sentiment decline for the month of March and a sharp drop in the ability to get a loan.

This is a dynamic that Roth MKM analysts say is “unseen” outside of or prior to recessions. Fed Chair Jerome Powell said on Wednesday afternoon that he continues to believe a soft landing is possible for the economy, but hedged his words adding that a “mild recession” is also possible. Fed staffers’ position has been to expect a mild recession.

Sellers said the environment is informing the moves he makes next for his business.

“We are hedging our bets by making sure that some of the things that we don’t use, like a line of credit that we haven’t used in eight years, we retain simply so that if I need it in the future I don’t have to get approved again,” he said. “So we’ve not been told ‘no,’ but it is definitely a fear and a reason why we are making very strategic decisions to not take certain growth opportunities … because I wouldn’t want to not be able to finance or adjust or get the working capital we might need in the future.”