Does Third Quarter 2025 Preview 2026 Performance?

Juanita Schwartzkopf
Oct 14
4 min read

Lenders are awaiting third quarter results from their borrowers and also anticipating receipt of the 2026 forecasts. These financial reports will be important for the next round of line of credit renewals, and extensions of term debt. As we discuss financial performance with lenders across the country, it is clear there are increasing levels of performance concerns.

Looking at bankruptcy filing statistics, it is obvious there is reason for concern. Bankruptcy Watch published this graph looking at bankruptcy filings from 2022 to 2025 on a weekly basis. The dark blue line is the 2025 weekly results, and those results are clearly trending higher than the prior years of 2022 to 2024.

Of additional interest is the seven year bankruptcy filing trend. The next tables, also from Bankruptcy Watch, show the number of Chapter 7 and Chapter 11 filings in calendar week 40 from 2019 to 2025. Chapter 7 filings are back to 2020 levels and Chapter 11 filings are higher than 2019 and 2020.

Why is this interesting?

The impacts of Covid were difficult for many businesses to navigate, however, the government fundings for businesses and individuals lessened the negative impacts from 2020 to 2023. According to the American Economic Association, the PPP (Payroll Protection Program) provided $800 billion dollars to small businesses in the form of uncollateralized, low interest loans which were mostly forgiven. According to the Penn Wharton School of Business, ERC (Employee Retention Credit) claims reached $567 billion, compared to an original estimate of $78 billion from the Joint Committee on Taxation. Consumers, and the companies that sold consumer products, benefited from three stimulus checks to consumers which pumped over $810 billion into the economy, according to pandemicoversight.gov. Americans received federal payments in March of 2020, December of 2020, and March 2021.

Now that the stimulus funding is over, businesses must respond to changes in their business by using financial, operating and management strategies. Strategic and management weaknesses in businesses are being exposed.

Lenders and their borrowers typically work to solve performance problems over a period time, with some lenders being more patient than others.

The consumer and commercial debt statistics, including the bankruptcy statistics noted earlier in this article, are showing some stress that needs to be considered when determining the level of patience to show to borrowers.

The next graph shows business loan delinquency rates are back to the 2020 levels.

The next graph shows consumer credit card delinquencies over the same time period. Consumers had remained strong performers during the post Covid period; however, delinquencies are showing weakness.

Borrowers should expect lenders to be less patient moving into 2026. Lenders should be asking borrowers to develop performance recovery plans with sufficient detail to allow performance risk evaluation.

What actions could lenders take?

While the situation for each lender and borrower is unique, the overall trends in the economy are warning lenders to pay particular attention to borrowers with weakening performance. The excuses of Covid, supply chain, interest rates, and tariffs are overused. Companies must be able to manage through changing times. The role of the senior management team is to fix problems, evaluate options, and manage the company to success. Excuses do not fix problems. Management is being paid to fix problems.

Forecasts need to be reviewed using a bridge from 2024 to 2025 to 2026 performance. The bridge should clearly show the changes in revenue and expense items, as well changes in working capital components and debt levels. The explanations must be detailed and traceable back to financial reports. Do not accept generalities and platitudes.

If a performance improvement plan is needed, the plan must be detailed. The plan should include the key actions to be taken, the person responsible for implementation, the date of implementation and the expected financial impact for 2026.

Lenders need to ask about capital expenditure plans in 2026 and forward given the tax law changes regarding expensing assets and depreciation in the OBBB signed on July 4, 2025.

Liquidity planning must consider weekly cash flow and working capital component movements and must use trends within the month as well as month over month seasonal and annual trends. Using averages does not work when liquidity is tight.

Lenders need to evaluate the performance risk in each borrower’s forecast, and the impact of performance risk on liquidity as well as financial covenants. Using performance risk in the lender’s review of forecasts will assist the lender in identifying the riskiest borrowers from a financial performance perspective and will help lenders plan for time to be spent on identified borrowers.

Lenders will want to consider the frequency of financial reporting. Quarterly statements may need to move to monthly statements. Monthly borrowing base certificates may need to move to weekly reporting. Reporting deadlines must be enforced.

2026 is shaping up to be the year of returning to the basics of lending and risk management.

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