Last updated: November 10, 2026 · By Chip Smith, CEO, Centered Partners
Early in my career, I thought the best loan was the one with the lowest rate.
It took me time to learn otherwise. The covenant you didn't read, the guaranty you didn't negotiate, and the lender who disappears when things get hard all cost more than a quarter point.
That's worth remembering right now, because the financing landscape just shifted.
What changed this fall
Rates went up. On September 16, 2026, the Federal Reserve raised the federal funds target range a quarter point to 3.75%–4.00%, citing inflation that "remains elevated" (Federal Reserve). Floating-rate borrowers feel that right away.
Banks are lending, carefully. In the Fed's April 2026 Senior Loan Officer Survey, modest net shares of banks reported tightening standards on commercial and industrial loans to firms of all sizes, with higher premiums on riskier credits, tighter covenants, and tighter collateral requirements (ABF Journal, Sept 9, 2026). ABF Journal summed it up for middle-market borrowers: credit "that is available but more expensive in the ways that matter beyond the coupon."
Private credit slowed down. Direct lending volume fell to $33 billion in Q2 2026, from $74.1 billion in Q1, per PitchBook LCD data cited by ABF Journal. Spreads on plain-vanilla financings widened by roughly 25 to 50 basis points, and structures tightened. The cause, ABF notes, was a shortage of transactions, not a shortage of lenders or capital.
SBA rules changed October 1. The SBA's SOP 50 10 8.1 took effect October 1, 2026 (Starfield & Smith, Sept 2, 2026). Among the changes:
- 100% of direct and indirect owners must be US citizens or US nationals with a principal residence in the US. Lawful permanent residents are no longer eligible to hold any ownership interest, and there's a six-month lookback.
- Changes of ownership now fall into four categories (Initial Acquisition, Business Expansion, Owner Buyout, and ESOP and Cooperative), each with its own equity injection, debt service, and valuation standards.
- In an owner buyout, at least one original owner must stay and guarantee the loan.
- The seller-consultant period extends from 12 to 24 months in total.
- 7(a) Small Loans can no longer be used for ownership changes, and certain purchases over $3 million will require an independent quality-of-earnings report.
This matters for sellers too. 78% of business buyers expect to use SBA financing, according to BizBuySell (BizBuySell Insight Report, Q2 2026). If your buyer can't qualify, your deal changes.
Owners have noticed. In Capstone Partners' 2026 survey of 400 middle-market CEOs, 83.8% named interest rates as a growth concern, borrowing costs were the only concern that rose year over year, and planned debt raises fell 4.9% (Capstone Partners, Sept 24, 2026).
The three options, in plain terms
Bank loans
- Best for: established companies with steady cash flow, good collateral, and a relationship.
- Strengths: usually the lowest cost; treasury and deposit relationships; flexibility over time.
- Watch for: covenants, collateral requirements, personal guarantees, and floating rates. Banks may tighten when you most need them.
SBA loans (7(a) and 504)
- Best for: smaller companies, acquisitions, and owner-occupied real estate where a longer term and lower down payment help.
- Strengths: longer amortization and lower equity requirements than many conventional loans.
- Watch for: eligibility rules (including the new citizenship requirement), personal guarantees, documentation, and timing. The October 1 changes may slow some deals as lenders adjust.
Private credit (direct lenders, debt funds)
- Best for: companies that need more leverage, speed, or flexibility than a bank will offer, often in sponsor-backed deals or growth situations.
- Strengths: speed, certainty, and creative structures.
- Watch for: higher cost, tighter documentation, and prepayment terms. ABF Journal flags the risk that managers under pressure to deploy capital may reach for yield. Pick a lender you'd want beside you in a bad quarter.
Here's what I keep coming back to: the right lender is the one whose terms still work in your worst realistic year, not your best.
How to prepare, whichever way you go
Model the downside. Run your debt service at today's rates and at higher ones. The Fed's statement doesn't promise cuts.
Get your financials lender-ready. Clean, timely statements, a credible forecast, and defensible add-backs speed up every option.
Read beyond the rate. Compare covenants, guarantees, prepayment terms, reporting requirements, and what happens if you miss a target.
Line up the insurance lenders will require. Lenders often require property and liability certificates, specific limits, lender loss-payee endorsements, and sometimes key-person life insurance. Last-minute insurance fixes delay closings.
Consider an advisor. Capstone found CEOs who hired an investment banker completed debt and equity financings at higher rates than those who didn't (Capstone Partners).
Questions to ask before you borrow
- What exactly is the money for, and what's the payback?
- How does our debt service look if rates stay here, or rise another half point?
- Are we better served by a bank, SBA, or private credit, and why?
- What covenants would we be signing, and how close would we be to breaching them in a bad year?
- What personal guarantees are required, and are they negotiable?
- If we're selling, will our likely buyers qualify for SBA financing under the new rules?
- What insurance will the lender require, and is it in place?
- Do we have a second lender option if the first one changes terms late?
If you're weighing financing options, start a conversation with us. Our capital markets, real estate, and insurance teams work together, because your lender looks at all three.
The cheapest loan isn't the one with the lowest rate. It's the one you never regret signing.
This post is general information, not lending, legal, tax, or investment advice. Loan terms and eligibility vary by lender and borrower. SBA rules are subject to change and further guidance.
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Schedule a confidential conversation with Centered Partners.