Long before invoices get paid, business owners are often already out the cash. Labor, materials, and production costs hit first, while revenue lags behind.
For organizations like Jake Hadlock’s supplement manufacturing business, finding working-capital can be frustrating.
And as traditional lenders grow cautious, credit tightens, and even operationally healthy companies find line of credit applications being denied.
What’s going on? And what can you do about it in 2026? Let’s find out.
Tightening Credit Expectations from Traditional Lenders?
In January, Jerome Powell’s Federal Reserve declined to adjust interest rates. It’s impossible to say what the Fed will do next, especially given that Powell’s tenure ends May 15.
But on the ground? Interest rates are only one piece of the lending equation.
How accessible capital really is, how expensive it feels, and how terms are arranged depend on lender preferences as much, or more, than the Fed’s benchmark rate.
“Over the last couple years,” Jake Begins “we’ve seen traditional lenders become materially more conservative. Even without missing payments, credit committees have gotten stricter, and access to flexible capital has shrunk. That means higher costs for business owners, slower growth, and in some cases, otherwise viable businesses being pushed toward riskier forms of financing.”
Jake’s comment touches on two concerning claims:
- Lenders are behaving conservatively
- Therefore, businesses are pushed away from traditional financing into riskier categories, such as fintechs or credit cards, which offer less-than-favorable terms
Lender Conservatism
Trends over time are tough to pinpoint, but Jake’s first claim may prove accurate. The NYU Stern School of Business collects and publishes business data, and as of January, the banking sector boasts net margins 2-3x higher than the total market.
In other words, banks are lending conservatively. The industry as a whole has plenty of profit margin to issue riskier loans with, but is declining to do so.
We’ve witnessed the hesitance ourselves. In our Small Business Administration (SBA) Loan Application Guide, the key detail for borrowers is most lenders are only comfortable working with businesses that can already afford monthly debt service costs out of existing profit margins.
Banks hedge risk, and hard.
Less-Than-Appealing Alternatives
You’ve likely encountered lending hurdles yourself.
Whereas bank loans are administratively challenging to apply for, and usually come with personal-asset collateral guarantees, alternative lending or credit cards are quick to offer funding.
One business owner shared their direct experience with us, saying:
“Last year, a non-bank PO financing provider unexpectedly changed their model, and stopped supporting manufacturing companies. At that point, traditional lenders wouldn’t refinance or extend additional credit because balance sheets already had too much high-cost paper. That’s how many operators end up in the “private capital, merchant cash advance world.” It’s not desirable, but it’s fast and sometimes the only open door.”
We see businesses being pushed toward alternative lending all the time. Owners are interested in accessible affordable credit, but often have to settle for just “accessible.” After all, there must be a reason our Best Credit Cards for Business Owners article drew thousands of readers last month.
What Does a “Bad Loan” Look Like? Real Examples
Hopefully, you haven’t had to deal with any unscrupulous parties, nor will you ever have to. There’s a good chance you’ll know in your gut if a loan is a good or bad idea, but perhaps these examples will be useful.
Example Merchant Cash Advance Loan Terms
Note: these are the direct experiences of an indinero-connected business owner.
- Deal A:
- Net cash received: $100,000
- Estimated total repayment: $157,300
- Key terms: $10,000 weekly payment
- Deal B:
- Net cash received: $49,500
- Estimated total repayment: $93,455
- Key terms: not provided
MCAs often argue there’s “no APR” because they’re not technically structured as a loan, and true annualized rates also depend on the repayment schedule. But regardless, these loans can become expensive very quickly.
Example Fintech “Service” Offering
You may have firsthand experience with a deceitful fintech. Hopefully not.
They market themselves as business lending providers, but their “offering” is a one-click ~25 simultaneous credit card applications, complete with surprise fine-print fees.
Slick websites… attentive salesman… deceptive business practices.
Be careful.
What Can Business Owners Do to Position Themselves For Affordable Credit?
There’s no one-size-fits-all answer. Everyone’s circumstances are unique.
Nevertheless, here are five tips for securing affordable lending:
- Books have to be GAAP-compliant and lender-ready. P&L statements, balance sheet breakdowns, revenue forecasts, tax documentation, and segregated personal and business finances (click to learn how to untangle your books).
- Read our SBA Loan Guide article. It’s a bit technical, so be prepared. But that information will prepare you for any loan application you may send to a traditional household-name lending institution. Pay close attention to the debt service coverage ratio section, it’s perhaps the most important criterion for lenders. And if you need help arranging your books in a way you can demonstrate creditworthiness, we offer free consultations.
- Read our Best Credit Cards for Business Owners article. Traditional lending may not be in reach right now, but for a short-term low-credit-limit solution, credit cards can work in a pinch. Some come with 0% APR introductory rates, while others offer rebates or introductory cash bonus offers.
- Build a rolling cash flow forecast. It doesn’t have to be perfect, but it will help avoid any unpleasant surprises. Our free financial modeling template may be helpful. Click into the article, and you’ll find a download link at the top. It’s technically for SaaS businesses, but the principles are universal.
- Avoid high-cost financing unless you’ve pressure-tested the impact. Fast capital can be tempting when options are limited, but before you sign anything, consider your worst-case scenarios, and evaluate if the loan is worth the risk.
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