Comerica Survey Reports 79% of SMBs expect Growth

The Comerica Small Business Pulse Index shows 79% of small businesses expect revenue growth averaging 7.9% next year—yet SBA 7(a) defaults hit 3.7% in 2024 (the highest since 2012), and banks have been tightening credit standards for 13 consecutive quarters.¹ Small business sentiment surveys are painting a rosy picture for 2026, but the operational reality facing alternative lenders tells a more complicated story.

• Default trajectory: Small business default rates reached 3.40% nationally in late 2025, up 49 bps year-over-year. Florida leads at 4.72%; North Dakota lowest at 2.01%. Projections suggest improvement to 3.19% by end of 2026.³

• Bank tightening accelerates: 15.9% of lenders reported tightening standards in Q2 2025, with small businesses hit harder (11.1% net tightening) than large/mid-market firms (6.2%). This is the 13th consecutive quarter of tightening.⁴

• Fed policy: Rate now sits at 3.50%-3.75% after three cuts in 2025. Fed's dot plot signals just one additional cut in 2026, with rates potentially settling at 3.25%-3.50%.⁵

• Tariff stress driving deal flow: Lending startups report 730% year-over-year increases in credit applications as importers scramble for working capital. Businesses are taking on 20%+ APR debt just to cover duties.⁶

• Alternative lending market: The U.S. MCA market has grown to approximately $20 billion, with approval rates reaching 84-91% versus 30% for traditional small business loans.⁷

The gap between borrower optimism and credit reality represents a significant opportunity for alternative lenders willing to price risk accurately—but also a warning about the quality of deals flowing downmarket as banks retreat.

What Alternative Business Lenders Need to Know

Is the Optimism Real, or Are We Looking at Adverse Selection?

When 79% of surveyed small businesses say they expect growth next year, that sounds like a healthy demand environment.¹ But look at the composition: technology firms report 93% confidence while retail sits at just 67%.¹ Housing and real estate—sectors heavily represented in alternative lending portfolios—show the lowest confidence levels. Meanwhile, 42% of businesses report negative tariff impacts, with manufacturing and retail sectors hit hardest.¹

The disconnect between headline optimism and sector-level stress matters for deal sourcing. Businesses flowing into the alternative lending funnel right now skew toward the stressed segments—importers eating tariff costs, retailers watching margins compress, manufacturers navigating supply chain disruption. That's not inherently bad, but it demands different underwriting than the "growth capital" positioning some press releases suggest.

What Do the Default Numbers Actually Tell Us?

The SBA's troubles are instructive. The 7(a) program hit 3.7% defaults in 2024, with over 1% of borrowers defaulting within the first 18 months of origination.² That early default spike triggered Congressional hearings and policy reversals, including reinstatement of lender fees and restoration of tax transcript requirements for loans under $350,000.²

Equifax's Small Business Default Index sits at 3.37% nationally as of January 2025, down one basis point month-over-month but up year-over-year in 44 states.⁸ Geographic dispersion matters: California and Hawaii are at 4.1%, West Virginia and Georgia at 4.0%, while the Dakotas and Iowa remain under 2.5%.⁸

Industry concentration is equally important. Mining, quarrying, and oil/gas extraction saw default rates jump 53% year-over-year. Wholesale trade increased 29%, and agriculture/forestry climbed 27%.⁸ If your portfolio tilts toward these sectors, the headline "defaults are stabilizing" narrative doesn't apply to you.

How Are Banks Pricing You In?

The Fed's October 2025 SLOOS revealed banks are actively tightening terms for small firms while easing for large corporates.⁹ Small business borrowers face lower maximum credit line sizes, tighter collateralization requirements, and increased use of interest rate floors.⁹ Meanwhile, large and middle-market borrowers saw rate spreads narrow and credit lines expand.⁹

This bifurcation is your market opportunity and your risk indicator. Banks cited "less favorable or more uncertain economic outlook," "worsening of industry-specific problems," and "reduced tolerance for risk" as primary reasons for tightening.⁴ They're not randomly retreating—they're selectively retreating from exactly the borrowers who will end up in your pipeline.

The Kansas City Fed's Small Business Lending Survey shows credit quality declined for the 11th consecutive quarter, with 68% of respondents citing borrower debt-to-income ratios as the primary driver.¹⁰

What's the Tariff Angle for Deal Flow?

Tariffs are driving immediate demand. Slope Inc.—the JPMorgan-backed lending startup—reported 730% year-over-year growth in credit line applications in August 2025.⁶ Importers need working capital to front duties before they've sold goods, creating a timing mismatch that alternative lenders can monetize.

But the pricing is aggressive. One New Jersey packaging importer took a 60-day credit line from Slope to cover $300,000 in duties on 100 containers from China.⁶ A Brooklyn frozen vegetable importer took on $200,000 at 20%+ APR just to avoid raising prices.⁶ CNBC documented businesses taking merchant cash advances at effective rates exceeding 30%—with some paying $30,000 in underwriting fees just to borrow $950,000.¹⁵

Over 67% of small and midsized businesses reported direct tariff impacts over the past 12 months—higher material costs, inventory delays, and forced supplier changes.²³ U.S. Customs collected over $200 billion in tariffs in 2025 alone.¹⁵

Where Does Rate Policy Actually Leave Us?

The Fed cut to 3.50%-3.75% in December 2025, but the dot plot projects only one additional cut in 2026 to 3.25%-3.50%.⁵ Goldman Sachs expects two cuts; Morningstar projects two; Bank of America projects two in June and July 2026.¹²²² Markets are pricing something similar.

But here's the complication: Powell's term expires May 2026, and the committee is visibly divided. Three dissents at the December meeting—one wanting a deeper cut, two wanting no cut.¹³ A new Fed chair could shift the policy bias in either direction. Inflation expectations remain above target at 2.5% for 2026 core PCE.⁵

For your cost of capital: don't underwrite expecting rates below 3%. If you're borrowing at Prime + 2% today, plan for that spread to persist. The relief will be marginal, not transformational.

How Should You Price This Market?

The MCA market is running factor rates between 1.1 and 1.5, translating to effective APRs of 40% to 150%+ depending on repayment speed.⁷ Holdback rates typically run 10-20% of daily card sales.²⁰ Approval rates for MCAs hit 84-91% through fintech platforms versus 30% for traditional bank loans.⁷

PayPal's merchant lending portfolio grew to $1.7 billion in outstanding balances by June 2025, up 41% year-over-year, with Working Capital product growth concentrated in Germany, the U.S., and U.K.¹⁶ LendingClub Bank held $5.3 billion in loans, up 15% year-over-year.¹⁶

The question isn't whether there's demand—there is. The question is whether you're pricing for the actual risk in your specific vertical mix, geographic exposure, and borrower quality tier.

1-Minute Video: What Services Does Cobalt Intelligence offer?

What Makes Cobalt Intelligence Different

1. Real-time data vs. cached competitors: Minutes-fresh information vs. weeks-old data

2. Direct state database integration: No middleman data degradation

3. REST API implementation: Less than one week deployment

4. Comprehensive Verification Ecosystem

   - Secretary of State verification (business entity status)

   - TIN Verification (tax ID validation)

   - UCC Filing data (lien discovery)

   - Contractor License verification (regulatory compliance)

For alternative lenders operating on thin margins with regulatory pressure, this technology represents a competitive necessity rather than a nice-to-have enhancement.

Our Success Stories:

• 1West: Complete elimination of manual verification processes

• General Merchant Funding: Per-application time savings at scale

• Bectran: Instant scoring and automatic declines for inactive entities

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