2026 Look Ahead and Prediction | LoL #18

[00:00:02] Shane: Welcome back to episode 2 20 26 Lords of Lending here at ya once again. And this topic, following up, the one we just walked through is 2026. What the hell are we in for? So Steph, give us the magical one-liner that lead off this glorious discussion. In a further run by Brian Conjole for five minutes.

[00:00:29] Steph: All right. First, let me preface by saying I’m coming into 2026 bullish. I’m excited. I’m, I’m revved up. I believe our small business economy is thriving and is gonna kick some butt. All right, but here, here’s my one liner. 2026 will be the year small businesses borrow even more, but own less.

[00:00:56] Shane: Hmm.

[00:00:59] Brian: What does that even mean?

[00:01:01] Shane: what does that mean? What does that mean?

[00:01:03] Steph: guys, you know what I, I’m, I’m no spring chicken, and I did live through the 2008 like debacle. And I’ll tell you, this is feeling eerily similar to what I’m seeing is a lot of debt. A lot of debt. And look, I’m a banker, right? We live off of. Providing access to capital. That’s our shtick. That’s our job.

[00:01:27] Steph: That’s what we do. We love to do it. But man, I’m looking at PFSs. I’m looking at business balance sheets and the equity. Equity is slim. Slim. Very little cash liquidity, very little equity in businesses. Lots of leverage. So borrowings up. But what are we doing,

[00:01:50] Shane: Equity pools getting lower. That’s an interesting play to come off of because it’s a trend I’ve started to see at the tail end of 2025 that even, even every time I’m getting a business plan, and we’re, we’re doing a lot of business acquisitions like the, the majority of the top 20 SBA players, but the, the business plans are being presented, is capital coming from somewhere else, not the person that knows how to run the business. And as a credit guy, you know, like we, that the conversations that I tend to have are seeded around that element. Like it’s not just the skin in the game. There’s plenty of lenders that continue to use the, the, the, the time tested idea that you need the skin in the game. But SBA kind of has created rules to minimize that amount of skin that has to be in.

[00:02:37] Shane: For us, for them to be willing to cover one of the loans that we give to ’em. So I think about, okay, lenders have a lot of greed in this industry, right? What, what drives our, our interest in lending is not just to help out people, like we’re in this, to make money as much as the small businesses, small business owners in it to make money on their end.

[00:02:56] Shane: So. That green number looks more and more enticing as the, the, the total available market. The tam gets smaller and, or gets bigger and bigger. We can kind of see the, the opportunity for profit in our end, and that tends to push people to, to start making decisions that go outside of traditional norms.

[00:03:16] Shane: Prudency, I hate that word sometimes. And as a sales guy that prudency it, it just gets you just like the, you know, pokes you on the side. But, uh, that, that stretch is gonna open up, rates will come down, cash flow is gonna look a little bit better. Lenders are gonna go a little bit more aggressive. And if you push the envelope on what SBA allows, more small business owners are gonna get money.

[00:03:36] Shane: Maybe some that shouldn’t. So I, I think there’s potential. For there still to be increase in defaults going into 26 beyond just people that had loans prior to, but even first 18 months defaults, which are things going bad way too soon. SBA hates it. Banks hate it. Um, the people who buy the loans from the bank hate it.

[00:03:53] Shane: But I feel like that element, uh, is, is something we gotta start to look out for. That’s me going doom and gloom, which I tend to do. What is my credit guy gonna think about? That I need to know how to answer and make sure that my, my small business owner is thinking about when they’re going into buying a business is, how does this fail?

[00:04:11] Shane: Not how does this succeed, but how is this gonna fail? And so I think that’s a good question to keep in mind in general, in business. But when you’re coming into this next year. Of, of, there’s still a lot of variability in, in what’s gonna happen from a tax aspect. What’s gonna happen if interest rates come down?

[00:04:28] Shane: What, what, what, what could happen from a, an international domain that might affect supply? Again, just from of the turmoil. Turmoil, it’s happening from some of the major sources with China and everything else. That starts to put a lot of pressure on the ability to get stuff outta that country. Or get, get things here to the us the, the pushes for, for manufacturing that, that they have and all the, the great ideas that are coming from manufacturing and, and it’s gonna take 10 years to come into effect.

[00:04:54] Shane: I don’t care how many people you move over from a different country, we’re not gonna see that we’re his president’s gonna be gone by the time the next, before we even start to see really any of those returns. So it’ll be a great flux moving us that way to try to build a better economy and, and, and build interest in helping to prop up local manufacturers.

[00:05:11] Shane: But. I don’t know. I don’t, I don’t think any of those moves we’re gonna see any, any results from, until years down the road. So knowing, knowing some of that, wow. I, I kind of went all over the place. I just pulled a coni on that one.

[00:05:22] Brian: What this even happened,

[00:05:24] Shane: What? Just,

[00:05:25] Steph: No, no, no,

[00:05:25] Shane: I’m back, guys. Where’d I go?

[00:05:26] Brian: are we?

[00:05:27] Steph: and then the painter comes

[00:05:29] Shane: then the painter. Give me back, guys. Gimme back. We’re, we’re back.

[00:05:34] Steph: So look at maybe, maybe let’s ask Brian. Okay, so the reality is this, we are in a debt driven economy. Like, what does that mean to you? I’ll tell you what, what it means to me is, look, I’m in the business of debt, but if you’re in a debt driven economy, I, I do cringe a little bit. Like it makes me a little nervous.

[00:05:57] Steph: Guys, if we are in a debt driven economy, like think about your brother is going to buy a $2 million business, and then if you look at the balance sheet post-close, he borrowed 1.8. He owes the seller another a hundred. So he is up to 1.9. And then he had, he had to get some credit cards ’cause he has to order inventory.

[00:06:18] Steph: I mean, so he has 2 million in debt, right? What’s the cash flow of a business that he paid 2 million for? He has 2 million in debt. And then you have the cost of labor. You have the cost of those funds. Your margins are this, right? So actually, you know the conversation I’m having with people now when they acquire business.

[00:06:37] Steph: What are you doing this for? All right, so you’re gonna spend 2 million bucks. I’m gonna lend you the money, okay? Access to capital. We’ve been all over that. All right? We’re nailing that. We’re nailing access. All right? But what are you gonna make every month? And when you look at that monthly cash flow after they paid everyone and all that of debt and all the, the people that you need and the cost of operating.

[00:07:01] Steph: There’s like a hundred bucks left and they’re like, whoa. Like when you break it down into that conversation, why are you doing all of this when there will be nothing left? And oh, by the way, you have no equity in this business.

[00:07:13] Brian: It’s, it’s definitely an interesting, interesting, uh, set of factors that are playing against each other. Um, the thing that I was thinking about staff as you asked that initial question or made that statement about people not having equity in the business is exactly what you just touched on. How are people going to get enough yield to be able to support themselves? The projects are actually just gonna have to get bigger and bigger to be able to get, you know, that six figure salary that you’re looking for at the end of the day to support your family. And so I, I don’t, I honestly don’t know where that goes. I’ve seen a number of deals lately that have, that have the equity coming from a different source.

[00:08:09] Brian: Which results in, like you were saying, Shane, people being completely, almost 95, a hundred percent leveraged on the deal, and there’s just not that much of a margin there to really support it unless you’re doing a two to $5 million acquisition and I don’t know. It’s tough because yes. Are there lenders that will do that?

[00:08:33] Brian: Absolutely. But with more and more people coming in. In those types of scenarios. Maybe it’s because the baby boomers, there’s so many, they’re all selling their businesses, the silver tsunami, there’s not as many buyers, and so they can be a little pickier. I don’t know how that ends up playing out, but.

[00:08:52] Steph: But that, you know what? Okay, so here’s, here’s a prediction for 26. You’re right. Silver tsunami is in full effect, right? We have a trillion dollars exchanging hands between those baby boomers and our generation. They’re the buyers, let’s say, right? Valuations are still through the roof. Okay? So what? The buyers are still paying.

[00:09:14] Steph: Top dollar values haven’t come down. Maybe a smidge, but not significant, right? So they’re still paying top dollar, and that’s the way for the baby boomer to cash out their equity because you’re right. Their margins have been compressed, compressed, compressed, compressed, right? So finally they’re cashing out their equity ’cause they do have equity, but the new buyers paying top dollar, top value access to capital they’re getting.

[00:09:37] Steph: So they could pay for the thing, but I don’t know what the sustainability will be now for the new owner that paid top dollar given the current margins. So my prediction for 2026 is we’re gonna start to see valuations. Coming down or adjusting. ’cause the buyers, it’s no longer a matter of, oh, well I can’t get the financing to buy it.

[00:10:01] Steph: They could get it, but it’s not worth buying if I’m not gonna make it be able to support my family every month. So that’s the conversation with the seller. It’s, I can’t pay 2 million bucks for this business because it doesn’t put off enough cash flow for me to be able to live. I could pay the debt, but that’s it.

[00:10:21] Shane: Well, my thought goes immediately to sustainable cash flow, right? So what if you’re going to buy a business or you have one? What secures that? That cash flow strength, right? So what’s backing it up? There’s a lot of disruptors in the market we talked about on the last episode, and of course it’s gonna come outta my mouth again.

[00:10:42] Shane: Ai, is it as a potential to be a disruptor? Well, well maybe, maybe, maybe not get into that one. I don’t know. But the, uh, the idea is what, what delineates somebody to be able to be successful with what they have and keep it going and perpetuate it. Or who’s, who’s really at risk of tremendous failure. So if I think about. Markets such as e-commerce, which are only continuing to grow when it comes to the number of people who are online selling, right? Online service providing. And yes, AI fuels the capacity for people to offer a service that they may not be qualified or knowledgeable enough to do. They can pretend a lot of pretenders are gonna come in 2026 and will continue to.

[00:11:22] Shane: That are just looking for shortcut, shortcuts to cash, right? Short shortcuts to making money fly by nights. Remember those, there’s a lot of those in the mortgage world back in 2008, like random, like mortgage, residential brokers. It’s gonna, it exists like fly by night. Engineers that, that, that just know how to use cloud code and build their own, own websites and everything else, and then try to sell that crap service.

[00:11:44] Shane: So you’ll see a lot of that. Um, I think that what goes along with that and what the separator is, how can I secure my cashflow? If you’re in a licensed business, you’re already sitting in a pretty good seat. ’cause the number of people becoming doctors these days is only in a con a steady decline. Right?

[00:12:00] Shane: The people that are going out to try to be electricians and get electrical licenses or plumber licenses or any of the, the trade licenses, things that are staple needs of any household are, are not. Growing exponentially. Right? But it’s, it’s an area. ’cause it’s not a flashy, sexy job to go out there and have to, you know, knock down walls and mess with plumbing.

[00:12:18] Shane: But those types of positions are gonna maintain stability. And I think when you go back to talking about equity and cash flow and the strength of that, those industries have the capacity to, to hold the strongest. So you can find yourself edging into that. Or if you’re forecasting out an opportunity for yourself in the future is look for those that that allow you to.

[00:12:37] Shane: To minimize the or to increase the barriers of entry to stop people from coming and taking your revenue away. ’cause that’s all that it is. It’s a capitalistic market, man. It’s that somebody’s gonna open shop next door to you. If they can’t, if they can’t because you have something that separates you, create that, lock that down and put a lot of effort into sustaining that to avoid problems when they will inevitably come.

[00:12:58] Shane: Because I think we’re on the cusp of some, some pretty aggressive shifts from real estate values to everything else that could potentially come. We’ve been talking about it for three years, since COVID, when everything has been balloon. Uh, so I think that that’s, that’s, those are some of the ideas to keep in mind to, to put you in a position of strength and strategy as opposed to fear of inevitably getting smacked down.

[00:13:19] Steph: All right. Here’s, here’s the thing too on that note. So 2026 more businesses, more startups, mo continued entrepreneurship spirit, but less resilience. Less equity. Less what? Do less ownership. Okay. Just because you own a business doesn’t mean you’re an owner. ’cause if you own a business and the, and it’s fully leveraged, you got nothing

[00:13:50] Shane: Yep. You got a lot of work to do is what you, what what the reality is. You got something with maybe a little bit of momentum. You gotta find a way to close, to expand, increase that gap. You’re running laps against your debt, right? So you’ve gotta find a way to increase your lead when, when you’re out there on the track with it, man, it’s, it’s a lot of, that’s a freaking exhausting is what that is.

[00:14:10] Shane: That just sounds free. That sounds exhausting.

[00:14:11] Steph: daunting. You know what would be a really interesting data point to, for our country to collect, not just Okay. We, we extended a hundred billion in business loans. We extended a hundred billion in business loans, which equals x. Billion in equity or value or true, true American equity. If we extended a hundred billion in debt and we have nothing to show for it, what are we doing?

[00:14:41] Steph: Are we gonna just keep doing this? Just throw on more debt. More debt, more debt, more debt, and if no one’s building any equity, like it’s like everyone who owns homes. Guys, this is back to what we were taught when from our grandparents. Is pay off your home. ’cause you wanna own your own home. Free and clear, right?

[00:14:56] Steph: Because you wanna have that equity. ’cause that’s power and that’s real value is equity. I don’t know anyone who owns their home free and clear anymore. Uh, like everyone I know is how can I get more out of this house? Can I get a second home equity line? Like the people we’re looking at their PFS, they have a first mortgage, a second mortgage, and then they wanna, okay, so there is like upside down equity in homes. how much equity really exists in this country? That would be a really fun number to track this much in debt, this much inequity.

[00:15:32] Shane: Well, I got an interesting, so this is the thought that I’ve had equity in. Income producing assets. And that’s not, that’s not just real estate, right? So your home is a freaking liability when all is said and done, even when you own it without debt, it still is liability. You’re paying a stupid tax, man, you gotta have some type of insurance on it in case it goes down.

[00:15:51] Shane: You got money going out the door and it’s not producing anything but a roof over your head and a little comfort, right? So it’s, it’s not a producer of anything. It might have some, some legacy wealth to it. When you croak, you can give it to your kids, as morbid as that sounds. Owed to the funeral industry, but it doesn’t do that.

[00:16:08] Shane: But finding a way to increase your equity in income producing assets, that means when you’re buying something for your business, will it make you money? Like I think these are some of the questions we need to be talking about. Uh, if you’re using debt, it better be to invest in something that’s gonna make money.

[00:16:22] Shane: It better not be to plug a hole. Plugging a hole can be done in other ways. You gotta look for cost cutting. You can’t keep floating the same operating margins all keeping all the same people. Find, find out how to get more outta less. That’s, that’s the way you stretch your business, your business as best you can.

[00:16:36] Shane: Debt shouldn’t be a whole plugger, it can be a bridge, but it shouldn’t be a whole plugger. And that’s, that’s where I think a lot of 2026 set and will continue to be marketed towards.

[00:16:46] Steph: Well, and you know what, I’m gonna throw something on here. The last five years, the major players in this space, all right. Have advertised cashflow lending, cashflow lending, cashflow lending, and that’s really what is the driving force behind these big numbers we’re seeing is cashflow lending, cashflow lending access to capital 2026.

[00:17:07] Steph: Now, because of the changes in the program and the credit risk, emphasis more on the lenders and really understanding, we need to revert back to the real business fundamentals. Of everyone that walks through that door, it’s no longer just cashflow anymore. Now it’s cashflow and balance sheet. Those are the two fundamentals that we need to go back to.

[00:17:33] Brian: Well, that’s something that I even started noticing. I, I feel like I started noticing that towards the end of 24 and into 25, where all of a sudden it seemed. Like it was a newer concept where underwriting and credit was definitely paying much more close attention to balance sheets, negative

[00:17:57] Steph: know why.

[00:17:57] Brian: balance sheets, you know, all these different things that I, before that hadn’t really looked at too much in depth, hadn’t paid attention to it, and then all of a sudden I started having these conversations with underwriters.

[00:18:12] Brian: And going into why does this person have, uh, negative equity on their balance sheet? Why are they, what are they doing with that? Where did money go here? All of those types of things. Stuff to pay attention to.

[00:18:25] Steph: Yeah. ’cause you know what? Just being a cashflow lender is very self-serving for the lender, it’s the attitude, and I’ve heard of this, I see it in the brochures. Not us, but a lot of people out there. It’s, well, if you, all we look at is your ability to service the debt. Can you service the debt? Talk about a one track mind.

[00:18:47] Steph: You know, if we really wanna do what it is we say we’re doing, which is serving entrepreneurs, and we wanna set people up for success. We wanna create legacies for American families and American entrepreneurs. You know what we need to do? Not just ask the question, can they pay back our debt? But are we setting them up for success?

[00:19:07] Steph: And the setup for the success is the combination of income, semen, cash flow and balance sheet equity, and that they’re building something there and they’re not just gonna be drowning in debt.

[00:19:19] Brian: And I think it comes down to. Kind of going back to like what we’ve already talked about, which is fundamentals of business, right? Understanding, like you were saying, Shane, really understanding, okay, if I take this debt on of $50,000, what is that gonna do to my revenue and then my bottom line, how does that impact it if I’m not making at least enough to cover the payment?

[00:19:46] Brian: Then some on that $50,000, it’s probably not worth it and I probably should consider some cost savings or um, you know, value engineering somewhere else.

[00:19:57] Shane: Mm-hmm.

[00:20:00] Steph: Absolutely. Take it home, Shane.

[00:20:04] Shane: Oh, I’m taking it home. I’m thinking about the, uh, well really we’re what’s coming out of this conversation today and to, to finish this out. We have this idea that there’s a big opportunity coming forward. Steph brings up the idea that the, the debt will increase on balance sheets for companies, but that’s gonna result in less equity.

[00:20:24] Shane: Brian brings up the point negative equity is something you should consider when you’re looking at ability to grow your business. If you’re moving yourself into that position where you’re gonna be taking on debt, that’s gonna throw you outta whack where you couldn’t sell tomorrow and get rid of enough to be able to cover yourself.

[00:20:41] Shane: What are you doing in your business this coming year to increase your assets, to increase your equity, to find some way to put the, the. The cards in your favor to quote the Hunger Games or whatever else, but find the way to increase, increase your equity position. It’s not just find building an ATM that’s gonna pump out money.

[00:21:01] Shane: How can you take what you’re earning and reinvest that to grow your equity pool, not just your debt? I think that the, the loans that we put out and the, the interest that we have as lenders to help you grow are, are to, for us to make money as much as it is for you to make money. If you’re not taking into, into consideration, what am I doing to add value to this business every single day when you wake up in the morning, you’re missing out and, and going to slow yourself down and create more risk, and a likelihood that you might inevitably hit the hit, the big B word bankruptcy.

[00:21:34] Shane: That, that comes at the tail end of, of missing the point, missing the opportunities, not paying attention to your numbers, not just keeping your finger on the pulse of what’s keeping your business alive. I think that, uh, in, in future episodes, we’re gonna get some small business on the owners on the phone, go through these concepts, talk about 2025, go through what’s gonna happen in 2026, and what are you projecting that, that it’s gonna be like for your business, and ways that you’re adapting now to do that.

[00:21:59] Shane: As great examples for how your small business or other lenders that are listening to this show. It might take into consideration when we’re underwriting credit, looking for people to partner with, looking for a business to buy, or just finding a way to be more successful in general. So appreciate you guys checking in and, uh, join us next time on the Lords of Lending, uh, bid.

[00:22:20] Shane: Do.

[00:22:21] Steph: No.