TSL Express Daily News

In 2024, asset-based lending (ABL) remained stable. The market moved away from the disruptions caused by the pandemic and returned to a more typical, fundamentals-driven environment. However, with persistent inflation, uncertain monetary policy, and new tariffs, lenders are now preparing for increased volatility.

Drawing from SFNet’s 2024 Annual ABL Survey, syndicated market data from LSEG LPC, and new macroeconomic insights from KeyBridge Research, we’ll examine where ABL stands—and where it’s heading—as the lending landscape adapts to a higher-stakes economy.

Macro Backdrop: A Market on Shifting Ground

The U.S. economy entered 2025 with mixed signals. The labor market remained healthy through Q1, averaging +152,000 new jobs per month, and real disposable income grew in both January and February. But below the surface, consumer fatigue is setting in. Retail sales fell sharply in January—the worst month in over three years—and barely rebounded in February. Consumer confidence dropped for the fourth consecutive month in March, with expectations for future conditions at their lowest level in over a decade.

Then came tariffs.

The impact of the escalating tariffs on China and many other countries is already sending ripples through the economy: import prices are soaring, U.S. businesses are scrambling to shift supply chains, and inflationary pressures are reemerging. Production cuts are being reported in sectors reliant on low-cost Chinese goods, and credit quality risks are intensifying. “Credit quality will decline,” economist John Silvia, founder of Dynamic Economic Strategy, had warned. “Slower growth and higher input prices will reduce the cash flow for companies… and lead to poorer business credit quality.”

Now, economists are issuing even starker warnings. “Tariffs of this magnitude effectively function as a tax on American consumers and businesses,” said Mark Zandi, Chief Economist at Moody’s Analytics. “They will raise prices, slow growth, and introduce new financial stress on firms already dealing with tight credit conditions.” Small businesses are already reporting layoffs, frozen inventory, and halted production plans. The broader concern, Zandi adds, is that “these tariffs could tip the economy closer to recession if retaliatory actions escalate and investor confidence erodes.”

Markets have taken note: Treasury yields initially went down and at this writing are up significantly, corporate credit spreads are up, bond markets have largely shuttered for highly leveraged credits and global responses—from China to the Americas  to the EU—are just beginning. For asset-based lenders, this landscape is both a challenge and an opportunity.  It is a challenge to assess credit risks given uncertainty over tariff impact and the overall direction of the economy.  The opportunity lies in the ability of the asset-based market to provide a steady source of liquidity in times of uncertainty.

Lender Sentiment: Confidence with Caution

Despite macro headwinds, the Lender Confidence Index compiled by SFNet and KeyBridge ticked up in Q4 to its highest level in three years. Banks rose +7.1 points to 63.2; non-banks climbed +8.7 to 65.8. Lenders expressed especially strong optimism for new business demand and staffing growth, though banks remained more cautious on portfolio utilization and economic outlooks.

Notably, this survey was conducted in February 2025 before the tariff announcements. Future readings may be more guarded.

2024 In Review: Syndicated vs. Full-Market Activity

Let’s not forget the fundamentals. LSEG LPC reports $105B in syndicated ABL volume in 2024, down 29% YoY, but still the fourth-highest year on record. However, when we zoom out using SFNet’s full-lens view—including both syndicated and non-syndicated deals—the story balances out:

• Total new commitments in 2024 exceeded $22B across all lenders
• Non-bank lenders posted a +9% YoY gain in new commitments, while banks declined -18.8%
• New outstandings surged for non-banks (+25.7%), but fell for banks (-17.8%)
• Utilization rates remained below historical norms: 35.7% for banks, 48.0% for non-banks

This dynamic reflects a market in transition. Banks are tightening risk, while non-banks are capturing lower middle-market demand with faster execution and flexibility.

Q4 Momentum: A Tale of Two Lenders

Fourth quarter activity paints a picture of divergence:

• Banks experienced muted deal flow. Commitment runoff jumped +88%, exceeding new commitments and driving down net balances.
• Non-banks, by contrast, saw an 11.9% increase in total commitments and a 168% jump in new outstandings, driven by faster underwriting cycles and sustained portfolio performance.

Still, credit quality remained mostly stable. Non-accruals and write-offs stayed well below historical norms, and even with a slight uptick in criticized loans, the industry isn’t flashing warning signs—yet.

Key Trends to Watch in 2025

1. Tariff Uncertainty and Stagflation Risk

With core PCE inflation at 2.8% and tariffs likely to push prices higher, the Fed faces a balancing act. Markets are pricing in four rate cuts by year-end; the Fed projects just two. Stagflation—the toxic mix of high prices and low growth—is now part of the economic conversation.

2. Refinancing Surge Incoming

ABL commitments totaling $347B are set to mature over the next 24 months (LSEG). With traditional credit markets still unstable, refinancing volumes may rise significantly.

3. Non-Bank Expansion Continues

Non-banks increased their share of new commitments and outstandings in 2024, a trend expected to accelerate. Purchased participations by non-banks grew to 5.9% of outstandings—up 223 bps from 2022.

4. Sector Rotation: From Retail to Industrial

Retail’s share of outstandings fell 200 bps YoY, while wholesale and manufacturing continued to dominate. ABL is well-positioned to support companies navigating reshoring, supply chain complexity, and energy transition challenges.

5. Operational Efficiency Through Tech

Underwriting headcounts are growing, but portfolio management and field exams are shrinking. Digital adoption is underway, and lenders investing in automation will see faster closings and improved risk tracking.

Final Word: Resilience With Eyes Wide Open

The story of 2024 wasn’t one of decline—it was one of repositioning. ABL proved once again that it’s not just a product for downturns but a strategic, scalable financing solution in uncertain times.

Looking ahead, lenders should brace for macro-induced volatility, but remain confident in the structural strength of the market. As SFNet’s CEO, Rich Gumbrecht, put it: “ABL has long been seen as an ‘all-weather’ industry—and it’s well-positioned to provide borrowers the capital they need to navigate uncertainty.”.

As tariff effects take hold and inflation dynamics evolve, expect a more discerning lending environment, more competitive deal structures, and increased differentiation between bank and non-bank strategies.  If history is any guide, ABL lenders will adapt, and pick up the pieces left behind by aggressive leverage.