J.S. Held Survey: SMB Hiring Intentions Collapse to 10%

The J.S. Held/Phoenix Management Q4 2025 "Lending Climate in America" survey reveals a sharp reversal in lender sentiment following three consecutive Fed rate cuts.¹ After optimism surged in Q3, confidence has eroded significantly heading into 2026—with economic outlook grades dropping 20 basis points near-term and 25 basis points long-term.¹ For alternative lenders, the signal is clear: traditional banks are retreating just as borrowers need capital most.

• Economic confidence falling: Near-term GPA dropped from 2.58 to 2.38 (Q3 to Q4); long-term expectations fell from 2.71 to 2.46—"D" level expectations rose from 8% to 13%¹

• Tightening on the horizon: 21% of lenders plan to tighten loan structures vs. just 5% planning to relax—a 4:1 tightening ratio¹

• Small-balance stability: Loans under $5M showed essentially no structural change (31% tighten vs. 32% prior quarter)¹

• Hiring freeze signal: Customer hiring intentions collapsed from 21% to 10%—businesses are preserving cash, not expanding¹

• Sector volatility alerts: 43% expect retail trade volatility; 38% flag healthcare; finance & insurance surged from 10.5% to 25.4%¹

• Capital demand rising: 64% of lenders expect customers to raise additional capital in the next six to twelve months¹

Bottom line: When 21% of traditional lenders tighten while 64% of borrowers seek capital, deal flow shifts to alternative funders—but so does fraud risk. The hiring freeze (21% → 10%) signals this is working capital demand from stressed borrowers, not growth capital from healthy ones. Price accordingly.

What Alternative Business Lenders Need to Know

Where Are Structures Actually Tightening—And What Does That Mean for Pricing?

The loan structure data reveals a bifurcated market. For loans above $25M, tightening intentions actually decreased from 24% to 15%, with 85% now maintaining current structures.¹ The $15-25M tranche shows similar stability, with tightening dropping from 26% to 13%.¹

The $5-15M segment is the battleground: tightening intentions rose from 21% to 23%, while relaxation jumped from 3% to 8%.¹ Some lenders are getting aggressive to maintain volume while others pull back. If you compete in this space, know who's relaxing and why—they may be chasing risk you should avoid.

For loans under $5M, structures remained essentially unchanged: 31% plan to tighten (vs. 32% in Q3), 59% maintain (vs. 58%), and 10% relax (vs. 11%).¹ Banks aren't abandoning small-balance commercial; they're frozen in place.

What this means for pricing: The competitive environment hasn't materially changed at the sub-$5M level. Factor rates in MCA remain in the 1.1–1.5 range, with typical deals landing at 1.2–1.4 for A-paper and 1.35–1.5 for C-paper.²¹ Factoring discount rates run 1–5%, with advance rates of 80–95%.²¹ Traditional factoring fees exceed bank lending rates by 200–400 basis points.¹³

In the middle market, private credit spreads have compressed to approximately 525 basis points over SOFR at the median, but lower middle market deals (EBITDA below $25M) maintain pricing power with spreads often exceeding 500 bps.¹² The spread compression is happening at larger deal sizes—not in the sub-$5M space where most alternative lenders operate.

Why the Hiring Freeze Is the Most Actionable Signal

64% of surveyed lenders expect their customers to raise additional capital in the next six to twelve months—up from 58% in Q3.¹ But customer hiring intentions collapsed from 21% to just 10%.¹

When businesses are raising capital while freezing headcount, they're in cash preservation mode—not growth mode. That's working capital demand, not term loan demand. MCA, A/R factoring, and short-duration products should see elevated flow, but the borrower profile is shifting from growth-oriented operators to stressed operators seeking liquidity.

This is the setup that produces stacking. When traditional lenders tighten and borrowers get desperate, they start layering MCAs on top of each other. MCA stacking creates overlapping repayment schedules—each funder takes its cut daily, which can drain cash flow to the point where the business can't operate.¹⁹ MCA default rates already run 20–30%,¹⁸ and that number climbs when borrowers are stacking.

Risk adjustment: Tighten your position verification. Check for existing UCC filings before funding. If a merchant already has two or three positions, the economics of adding another are terrible for everyone involved.

Fraud Risk Rises When Traditional Credit Tightens

The Yellowstone Capital settlement should be a warning sign. New York's Attorney General secured a $1B+ judgment against Yellowstone for what were essentially loans disguised as MCAs—with fixed payments, no reconciliation, and effective APRs that exceeded 100%.²⁰ The settlement canceled over $534 million in outstanding balances and barred Yellowstone from the MCA business entirely.²⁰

When traditional lenders retreat, borrowers get creative. Fake bank statements are available online for as little as $10, and fraudsters use them to present healthier deposit balances and transaction flows than reality.¹⁸ Shell corporations with zero assets and fictitious documents have extracted millions from MCA funders.¹⁸

Underwriting adjustments:

• Use bank verification APIs (Decision Logic, Plaid, etc.) rather than accepting uploaded statements

• Cross-reference business registration dates against stated time in business

• Check for multiple UCC filings from other funders

• Verify that the business address matches the bank account address

• Flag applications where the "merchant" can't explain basic operational details about their business

The 21% tightening vs. 64% seeking capital dynamic creates exactly the desperation environment where fraud attempts spike. Build verification costs into your pricing now rather than eating losses later.

Healthcare: Connect Sector Risk to Underwriting Adjustments

Healthcare volatility expectations jumped from 26% to 38%—a 12-point increase in one quarter.¹ The survey notes the government shutdown's focus on healthcare costs and funding is driving concern.¹ S&P Global data shows healthcare had the highest median probability of default among all U.S. public sectors in Q1 2025—6.90%, up from 5.71% in Q4 2024.⁹

But the 6.9% number masks significant subsector variation. Here's how to adjust:

Skilled nursing facilities: Nursing home loan delinquency rates rose to 2.7% in 2024—up from 0.6% in late 2023.¹⁶ That's a 4.5x increase in one year. Medicaid reimbursement timing (90% of clean claims within 30 days, 99% within 90 days) creates structural cash flow gaps, but the bigger risk is Medicaid rate adequacy. If you're factoring skilled nursing receivables, drop your advance rates to 70–75% on Medicaid-heavy payer mixes (vs. 85–90% on Medicare/commercial). Increase your reserve holdback by 5–10 percentage points.

Behavioral health and outpatient services: Durable demand and 1.6% cumulative default rates since 2000.¹¹ Multi-visit authorization requirements create payment delays, but the underlying reimbursement is more stable than long-term care. You can maintain standard medical factoring advance rates (80–90%) with commercial/Medicare payer mixes.²¹ Mental health billing codes require specialized verification—if you're not already set up for behavioral health, the learning curve isn't worth the risk at current volumes.²²

Home health and hospice: Mixed bag. Commercial-pay home health is fundable at standard advance rates. Hospice with heavy Medicaid exposure carries the same reimbursement risk as skilled nursing—reduce advance rates accordingly.

Retail: The Bankruptcy Wave Is Already Priced In

43% expect retail volatility—down from 55% in Q3.¹ That's still the top volatility sector, but the decline suggests the worst may be behind us. Moody's distressed list includes Guitar Center, At Home, and several home goods retailers,⁸ but many at-risk names have already filed.

The headwinds are structural: home goods retailers face weak housing turnover, discretionary spending is constrained among lower-income consumers, and the 2025–2028 debt maturity wall is already producing Chapter 11s.⁷

Underwriting adjustment: If you're funding retail, your advance rates and holdback percentages should already reflect distress pricing. The question isn't whether to avoid retail—it's whether you have the workout expertise to capture the spread. If 43% of your competitors expect retail distress, advance rates will compress market-wide. The lenders who maintain sector expertise while tightening underwriting will capture share from generalists who exit.

Finance & Insurance: The Canary in the Coal Mine

This is the signal that deserves more attention. Finance & Insurance volatility expectations jumped from 10.5% to 25.4%—a 15-point surge in one quarter.¹ Lenders are seeing stress in their own ecosystem.

The likely drivers: regional bank exposure to commercial real estate, insurance carrier reserve concerns, and the knock-on effects of CRE distress on financial services portfolios. If you have exposure to premium finance companies, equipment lessors, or smaller balance sheet lenders, tighten your monitoring. These are the borrowers most likely to face liquidity squeezes if the credit cycle turns.

Construction: The Re-Entry Window

Construction volatility expectations dropped from 29% to 10%—the biggest decline in the survey.¹ Rate-cut optimism is flowing into the sector. If you've been underweight construction, this may be the re-entry point.

The Fed has cut rates three times, bringing the target to 3.50%–3.75%.⁴ The December dot plot signals slower easing than expected (one additional cut in 2026, one in 2027),⁶ but construction borrowers have already benefited from 75 bps of relief. That's meaningful for project economics, especially in residential where rate sensitivity is highest.

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