2026 Forecast Challenges

Evaluating the 2026 forecasts will have some unique challenges both lenders and borrowers need to be considering.  Let’s outline some of the topics that lenders should be adding to their traditional reviews and questions when talking with borrowers about the 2026 forecast.

The first discussion topic to add is the One Big Beautiful Bill (“OBBB”) impact. 

Lenders do not need to become experts on the OBBB, but they do need to be aware of major areas of change that would impact financial forecasting.  Here is a list of discussion areas:

• Research and Development. 

  • Domestic research and development expenses incurred January 1, 2025 and after can be expensed in the current year, rather than amortized over 5 years.  This may increase expenses reported on the income statement in 2025.

  • There is the potential to go back to amend 2022 and 2024 tax returns for domestic research and development expenses.  This could impact income statement and balance sheet reporting.  This could also result in tax refunds.

  • Foreign research and development expenses will continue to be amortized over 15 years.

    
    

• Depreciation.

  • Beginning with January 19, 2025, purchased assets may be depreciated in the year purchased.  This may cause differences in accounting between accountant and internally prepared financial statements versus tax basis statements.  This increased difference between accountant prepared and tax basis statement may impact current and deferred taxes on the accountant prepared financial statements. 

    
    

• Qualified Production Property.

  • For the first time, buildings that are used for manufacturing and are owned by the company doing the manufacturing may be fully expensed rather than being amortized over 25 years.  This will also cause differences as noted in the previous bullet point related to depreciation and taxes, and net book value of property, plant and equipment.

    
    

• Miscellaneous Other Items.

  • Energy credit provisions are expiring.

  • Pass through taxation levels to owners are changing, which would be expected to reduce the individual owner’s tax expense.  Any allowed distributions to owners for taxes, if not directly tied to the tax payment the owner makes to the IRS, should be reviewed and reduced if appropriate.  Many lenders allow a percentage of net income to be distributed.  This may need to be adjusted downward.

  • Charitable contribution allowances are changing.

  • Consider state tax changes, if applicable. 

A second discussion topics is tariffs. 

There has been a lot of fear and discussion focusing on tariffs.  Consider the stock market as an indicator of tariff fears.  The stock market low was immediately after the announcement of tariffs on April 1, 2025.  However, the stock market has certainly recovered after that initial fear impact.

Borrowers often use the excuse of tariffs, similarly to the variety of excuses you have heard over the past five years – Covid, supply chain, interest rates, etc.  Lenders need to be prepared to dive deeper into the tariff discussion.

Looking at tariffs by country, as of August 25, 2025 tariffs ranged from 10% for the UK, Russia, Saudi Arabia and Columbia, among others, to 50% for Brazil and others.  The weighted average tariff is between 15% and 17%.  If reciprocal rate pauses expire, that average could increase to 23.1% per the map below which was prepared by the Tax Policy Center.

Tariffs on consumer goods continue to stock fears of inflation.  The Tax Policy Center developed this table showing the consumer goods with the biggest tariff changes.  As lenders evaluate business forecasts for borrowers in these industries, the income statement impact will need to be evaluated.  Lenders need to know the assumptions used and the unit and volume impacts.

Clearly tariffs have an impact on financial performance and that will vary by industry and by company.  When a lender is confronted with the tariff excuse for reduced performance in 2025 and recovery in 2026, the truth will be found in uncovering the actual prices per unit sold and costs for each unit, and identifying where tariffs are reported on the income statement and balance sheet.  The lender will need to understand the accounting surrounding tariffs, as well as how the borrower is passing through tariff costs in the price per unit.

Additional Discussion Topics

Lenders should also prepare to discuss these topics from the headlines that will impact financial forecasts.

• Interest rates.  The current consensus for rate changes is that interest rates will decrease during the remainder of 2025 and into 2026, but few are expecting major changes.  Borrowers will need to live with the higher cost of leverage, though there may be some reductions for variable rate borrowers.

The Fed publishes a “Dot Plot” quarterly which shows each Fed Governor’s rate expectations.  Each dot represents the opinion of one governor.  Bondsavvy.com prepared this view of the September expectations.  For year-end 2025 the consensus is a rate reduction to 3.75% from the current 4.25%, though one governor thinks rates will increase a quarter point and one governor thinks rates will reduce 5 times to 3.0%.  The year end 2026 expectation is for rates to reduce an additional 25 basis points to 3.5%, and the year end 2027 rate is expected to reduce to 3.25%. 

Borrowers should not expect interest rates to reduce to 2021 levels when the Fed Funds rate was 0.25%; therefore, balance sheets need to be built accordingly. 

• AI (Artificial Intelligence).  Lenders will want to be prepared to discuss AI with borrowers.  This discussion could take multiple paths including implementation costs and staff reduction expectations.  Lenders should think about this topic in the same way they think of software system conversions.  Clear cost estimates are needed for the implantation phase as well as the ongoing subscription costs.  An implantation timeline with costs by month should be developed.  The range of potential cost reductions should include specific staff reductions and a timeline. Each industry will be impacted differently, and each company will vary in its response to AI.

• Cyber Risks.  Cyber risks continue to increase.  Industry professionals estimate the global impact of cybercrime in 2025 to be $10.5 trillion.  Lenders need to understand their borrower’s cybercrime coverage and may want to consider adding an evaluation of cyber insurance to the usual list of insurance coverages evaluated.

Next Steps

When evaluating the 2026 financial forecasts lenders will need to have some additional background on these topics in their toolbox.  This article is a good outline to begin preparation for 2026 performance discussions. 

If you would like to discuss these topics, or other 2026 forecast thoughts, with us, please call us anytime.

J. Tim Pruban

President, email: t.pruban@focusmg.com | cell (813) 918.7488

Juanita Schwartzkopf

Sr Managing Director, email j.schwartzkopf@focusmg.com | cell (520) 203.2926

Joe Karel

Managing Director, email j.karel@focusmg.com | cell (312) 307.1541