SFNet’s Q1 2026 ABL Survey Shows Strong Utilization Growth Amid Slower Deal Activity

The first quarter of 2026 presented a paradox for the asset-based lending industry. The broader U.S. economy gained momentum, businesses continued investing, consumers kept spending, and employment growth accelerated sharply. Yet despite those encouraging signals, many lenders experienced a noticeably slower quarter for new deal activity.

According to SFNet’s Q1 2026 Asset-Based Lending Survey, utilization rates for existing facilities increased, expanding total outstandings, and lender confidence remained generally positive. At the same time, new commitments declined significantly and many borrowers appeared hesitant to pursue major financing transactions amid inflation concerns and geopolitical uncertainty.

The result is an industry that remains fundamentally healthy, but is operating in an environment where caution continues to influence borrower behavior.

Economic Momentum Returns

After ending 2025 on a relatively soft note, the U.S. economy strengthened during the first quarter of 2026. Real GDP increased 1.6% during the quarter, improving from 0.5% growth in the fourth quarter of 2025. Business investment emerged as a significant contributor, advancing at a 10.1% annualized rate, while consumer spending continued to support overall growth. Retail sales increased for a fourth consecutive month in May, and employers added 565,000 jobs during March, April and May combined.

These indicators suggest that economic activity has regained momentum. At the same time, inflation remains a significant challenge. Consumer Price Index inflation accelerated to 4.2% year-over-year in May, the highest reading since April 2023. Rising energy prices associated with conflict in the Middle East contributed to inflationary pressures, while real disposable income declined for three consecutive months. Consumers have increasingly relied on reduced savings to maintain spending levels, pushing the personal savings rate down to 2.6%.

For lenders, the inflation outlook remains one of the most important variables influencing borrower activity.

Interest Rates Likely to Stay Higher for Longer

Federal Reserve policymakers have signaled that inflation remains their primary concern.

The Federal Open Market Committee held rates steady in June and indicated a willingness to maintain current policy or potentially raise rates if inflation remains elevated. According to the report, only one of 18 responding Federal Reserve officials expects a rate cut during 2026, while nine anticipate at least one rate increase.

For borrowers, that means financing costs are unlikely to decline meaningfully in the near term. The persistence of higher interest rates appears to be contributing to the cautious stance many companies have adopted regarding acquisitions, expansions, and refinancing transactions.

Confidence Splits Between Banks and Non-Banks

One of the most notable findings in the survey is the growing divergence in sentiment between bank and non-bank lenders.

The combined confidence score among banks declined seven points to 55, placing overall sentiment only slightly above neutral. Expectations weakened for business conditions, demand for new business, and portfolio performance. Bank lenders reported the sharpest decline in their outlook for general business conditions, which fell 19 points to a score of 38.

Non-bank lenders moved in the opposite direction. The non-bank confidence index increased nine points to 67, its highest level in more than three years. Non-bank respondents expressed stronger expectations for demand, utilization, portfolio performance, and hiring activity. Their outlook for demand for new business rose to 82, while expectations for utilization climbed to 86.

Although neither group expressed strong optimism regarding overall economic conditions, non-bank lenders clearly see greater opportunities developing over the coming quarters.

Deal Activity Slows

Despite improving economic conditions, new business generation slowed considerably during the quarter.

Among bank respondents, new commitments with new clients declined nearly 50% from the previous quarter. Commitment runoff also fell, but not enough to offset weaker originations, causing net commitments to turn slightly negative. New outstandings declined as well, although lower runoff levels allowed net outstandings to remain positive.

Non-bank lenders reported a similar trend. New commitments with new clients fell nearly 74% from the prior quarter following a particularly strong finish to 2025. While total commitments and outstandings still grew modestly, overall deal activity slowed substantially.

The survey suggests borrowers are not abandoning financing plans altogether. Rather, many appear to be postponing decisions until there is greater clarity surrounding inflation, interest rates, and geopolitical developments.

Outstandings Continue to Grow

Although new deal activity softened, borrowers made greater use of existing credit facilities. Among bank respondents, total outstandings increased 8.7% during the quarter while commitments remained essentially unchanged. Total commitments reached $359.3 billion, while outstandings increased to $143.2 billion.

Non-bank lenders also reported growth in outstandings, which rose 5.7% quarter-over-quarter. This pattern resulted in rising utilization rates across the industry.

Bank utilization increased to 38.4%, just below its long-term historical average of 39.7%. Non-bank utilization rose to 54.6%, well above its long-term average of 49.0%.

Rising utilization is often one of the clearest indicators that borrowers continue to rely on asset-based lending facilities for working capital support and liquidity management.

Credit Quality Remains Manageable

Portfolio performance remained mixed, but generally stable.

For banks, criticized and classified loans declined as a percentage of outstandings, improving by 42 basis points during the quarter. Gross write-offs also declined. However, non-accrual loans increased modestly as a percentage of outstandings.

Non-bank lenders reported a similar pattern. Non-accruals increased, but gross write-offs declined and no non-bank respondents reported a rise in write-offs during the quarter.

Taken together, the results suggest that while isolated credit challenges remain present, portfolio quality across the industry continues to be relatively healthy. The report specifically notes that lenders remain vigilant for signs of broader stress as utilization rates continue to rise, but there is little evidence of systemic deterioration at this stage.

Positioned for Future Demand

Perhaps the most encouraging finding from the SFNet survey is that lenders remain prepared for future growth despite the slower pace of activity.

Hiring expectations remain positive among both banks and non-banks. No respondents in either category expect headcount reductions during the coming quarter. Confidence in utilization growth remains strong, and demand expectations continue to be positive even among bank respondents whose outlook has become more cautious.

Economic conditions remain supportive of asset-based lending. Borrowers continue to utilize facilities at higher levels, portfolios remain stable, and lenders are maintaining the resources necessary to support future growth.

While inflation, geopolitical uncertainty, and interest rate expectations have slowed decision-making among borrowers, the underlying demand for working capital financing remains intact.

As postponed transactions begin to move forward and market uncertainty subsides, the asset-based lending industry appears well positioned to support the next phase of borrower activity.

For now, lenders remain patient, vigilant, and prepared for opportunities that may emerge later in 2026.

This article was created with the assistance of AI.