In case you missed it, check out our previous articles in this series, where we explored how shifting economic and policy signals were beginning to reshape the lending landscape.
- Lending in the Age of Uncertainty: Geopolitical Factors
- Lending in the Age of Uncertainty, Part 2: Managing Loan Risk Amid a Federal Shutdown
Back in September 2025, we took a closer look at the early signs of volatility facing lenders and borrowers alike. We then revisited the topic amid the federal shutdown in October 2025. Since then, uncertainty hasn’t eased. It has actually broadened. More forces are at play, the stakes feel higher, and the range of possible outcomes has widened. For lenders, this matters because uncertainty doesn’t live in a vacuum. It flows directly into loan portfolios, borrower confidence, and long-term planning.
The theme of this installment is challenging but simple: the operating environment may get tougher before it gets easier, requiring lenders to remain disciplined, adaptable, and forward-looking in how they assess risk and support their portfolios.
Expanding Sources of Volatility
The current environment is not defined by a single risk, but by the convergence of many. Economic, geopolitical, and structural forces are overlapping in ways that make outcomes harder to predict and more difficult to manage. For lenders, the challenge is less about identifying any one issue and more about navigating how these risks interact.
Global and Geopolitical Pressures
Global tensions have become more interconnected, with instability in regions such as Venezuela and rising friction with European allies contributing to a more fragile backdrop. The evolving Iran conflict adds a more immediate layer of uncertainty, driving higher oil prices, supply chain disruption, and renewed inflation concerns.
At the same time, inconsistent public messaging around these situations has made it difficult for markets and businesses to clearly interpret the severity and trajectory of events. This lack of clarity has reinforced hesitation in decision-making and added to overall market unease.
Policy and Regulatory Uncertainty
Shifting trade policy and unpredictable tariff actions continue to create planning challenges for businesses. Until clearer legal and regulatory frameworks emerge, policy-driven volatility is likely to remain a persistent factor in borrower risk.
Structural and Market Shifts
Longer-term changes are also contributing to uncertainty. The early impact of artificial intelligence on the workforce is still unfolding, requiring businesses to adapt while outcomes remain unclear. At the same time, digital assets continue to present risk due to inconsistent regulation and valuation complexity.
Sector-Specific Stress Points
Certain industries are already showing signs of strain. Commercial real estate faces ongoing pressure from vacancies and higher rates, small businesses remain sensitive to input cost volatility, and agriculture continues to be exposed to commodity price swings and trade dynamics. These sector-specific risks are becoming increasingly important in portfolio-level risk assessment.
Local and Workforce Dynamics
Finally, national and global issues are translating into local challenges. Workforce disruptions tied to enforcement actions and shifting labor availability are affecting industries such as construction, agriculture, and hospitality, creating additional uncertainty at the borrower level.
A Common Thread: Uncertainty Itself
Across all of these factors, one theme stands out: a lack of clear direction. Conflicting signals, whether from markets, policy, or geopolitical developments, are making it harder for businesses to plan and for lenders to rely on traditional indicators.
The result is an environment where caution is rising, decisions are slowing, and the range of possible outcomes continues to widen.
What This Means for Commercial Lending
Taken together, these forces are not just increasing risk, they are changing how risk behaves. Volatility is becoming more persistent, more interconnected, and less predictable, requiring a more dynamic approach to lending.
For many borrowers, uncertainty is translating into delayed decisions. Expansion plans are being postponed, capital expenditures are being reevaluated, and liquidity is being preserved. This can soften credit demand in the near term while simultaneously increasing stress on existing obligations, particularly in sectors already under pressure.
For lenders, traditional, static approaches to risk management may not be sufficient in this environment. A more active and forward-looking posture is required.
What Lenders Should Be Doing Now
- Increase scenario planning: Move beyond base-case assumptions. Model multiple paths, including the rate increases and decrease by the Fed, prolonged inflation, supply disruptions, and slower growth, to better understand potential portfolio impacts.
- Strengthen borrower communication: Frequent, proactive conversations can surface early warning signs. Understanding how borrowers are managing cost pressures, labor challenges, and demand shifts is critical in a rapidly changing environment.
- Reassess sector concentrations: With stress building unevenly across industries, portfolio diversification matters more. Pay particular attention to concentrations in commercial real estate, small business, and agriculture.
- Tighten structure where appropriate: Increased volatility may warrant stronger collateral positions, more conservative leverage, and enhanced covenant structures, especially for higher-risk credits.
- Focus on liquidity and resilience: Both lenders and borrowers should prioritize liquidity. Access to cash and flexibility in capital structures can be a key differentiator in navigating uncertainty.
- Stress-test proactively, not reactively: Regular portfolio stress testing across interest rate, recession, and sector-specific scenarios can help institutions stay ahead of emerging risks rather than respond to them after the fact.
Ultimately, this environment rewards discipline. Lenders that remain engaged, adaptive, and data-driven in their decision-making will be better positioned to manage risk while continuing to support their clients.
Looking Ahead: 2026 Lending Considerations
Despite the broader uncertainty, several factors are likely to shape the lending environment in 2026. While risks remain, there are also pockets of opportunity and areas requiring heightened attention.
Commercial Lending Opportunities: Bonus Depreciation
- Bonus depreciation has returned, allowing businesses to accelerate depreciation on qualifying investments.
- This can improve after-tax cash flow, strengthen financial performance, and support reinvestment in equipment, property, or growth initiatives.
- Small and mid-sized businesses may be particularly well positioned to benefit, creating opportunities for well-structured commercial lending.
Consumer Lending Pressure Points
On the consumer side, several challenges are emerging that could affect credit performance:
- Student loan obligations are expected to remain a headwind, placing ongoing pressure on household budgets.
- Rising healthcare costs may emerge as certain Affordable Care Act subsidies expire, potentially leading to higher premiums or reduced coverage.
Together, these factors could contribute to increased delinquencies, particularly among financially stretched households.
Residential Real Estate: Cooling, Not Collapsing
- Home values remain elevated, though signs of cooling are emerging in many markets.
- Affordability remains strained following several years of rapid price growth.
- If interest rates continue to decline, refinancing activity may increase, offering some relief to homeowners and opportunities for lenders.
- Even so, careful attention to valuation and borrower capacity will remain critical.
Key Takeaways
Uncertainty has always been part of lending, but today it feels broader and more persistent. Navigating what comes next will take flexibility, strong risk discipline, and ongoing communication with borrowers. While the road ahead may not be easy, lenders that remain engaged and adaptable will be better prepared for what’s ahead.
If you have any questions or are interested in learning more, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
